One positive take from 2023 was that governments proved their commitment to previously set targets. Last year saw a tug-of-war between developers and governments related to offtake pricing. While governments naturally prefer the lowest possible energy prices, they have shown a willingness to lift prices and introduce inflation adjustments a part of the offtake terms. Another positive from last year was that Europe hit a new record of final investment decisions (FIDs) for offshore wind projects, reaching more than 8.5 gigawatts (GW), which will ensure strong activity levels in the short-to-medium term.

This year is expected to see several auctions in Europe, with nearly 38 GW of capacity up for grabs during 2024. The increased supply of available capacity is expected to lower the cost of project acquisition for developers, thus reducing the chances of a “winner’s curse” following aggressive bid wars for acreage or offtake, as observed in recent years. This will in turn improve project economics.

Inflation started flattening out in 2023 and is expected to continue falling in 2024, which means that interest rates have likely peaked. This shows promise for further improvements in project economics; however, prices remain significantly higher than pre-Covid levels, and interest rates are likely to remain high. One consequence has been the advances made by companies with strong balance sheets, like the energy majors, which have strong cash flows from oil and gas operations and a limited need for expensive financing.  

While things may be looking up for the European offshore wind industry, the continent's supply chain will still struggle to meet demand. The European Union has focused on sovereignty in the supply chain and launched several policies aimed at addressing this.

While things may be looking up for the European offshore wind industry, the continent's supply chain will still struggle to meet demand. The European Union has focused on sovereignty in the supply chain and launched several policies aimed at addressing this. However, uncertainty around targeted financial support for the supply chain and individual nations’ ability to implement these policies remains. One positive trend among Western turbine manufacturers is that sizes are converging towards the 15-MW range. Vestas explicitly stated its intention of staying at 15-MW turbines; Siemens Gamesa is restructuring and is likely not able to upgrade its 14-MW model in the short term; and GE, which initially planned to launch an 18-MW model, revised its strategy to focus on a 15.5-MW “workhorse”. This will enable the European supply chain to standardize and scale up.

Nevertheless, this may open the door to Chinese suppliers, which are rapidly ramping up their capacity and sizes. Chinese suppliers have already increased their exports to Europe, dominated by foundations, but are also delivering towers and cables. While the main reason has been a lack of available European supply, the Chinese components are also significantly cheaper, which again, could continue to improve project economics.

For European policy makers, the balancing between reaching targets, providing affordable power, and ensuring a high share of European content will be increasingly difficult. And as the clock is ticking towards 2030, it becomes increasingly apparent that not all these goals are achievable simultaneously.

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