GE Vernova CEO: 'US offshore wind's being built using a European footprint – that has to fix itself'

GE Vernova believes offshore wind can play an important role in the energy transition, but market dynamics are presently more favourable for development in Europe than the US, although this could begin to change in the second half of this decade, said CEO Scott Strazik.

“There’s clearly more of an industrial footprint for wind today in Europe. There’s a higher level of conviction to grow the offshore wind industry in Europe with the determined focus to get off Russian gas,” he told a recent Bernstein conference.

“So, the price equation for what the end customers are willing to pay is higher in an industry that’s more industrialised on the other side of the ocean,” he noted, adding that the US “doesn’t really have an offshore wind industry today.

“Anything that’s getting built is really getting built using European or international footprint. That has to fix itself if we’re really going to have an offshore wind industry,” he said.

President Joe Biden set a 2030 target for the US to have 30GW of offshore wind capacity in commercial operation. While his administration has accelerated lease area sales in federal waters along the Atlantic and Pacific coasts, development has lagged due to adverse macroeconomic factors such as high inflation and interest rates, offtake pricing, and supply chain hurdles.

Europe-based developers such as Orsted, Iberdrola and Equinor have scrapped some unprofitable contracted East Coast projects while paying hefty fines to cancel offtake contracts for others to rebid them in future tenders, looking to obtain higher prices. Private consultancies forecast as little as 13GW will be in place at the end of this decade.

The US also needs to get to the point where there is acknowledgement that offshore wind is an important part of its pathway to zero emissions, particularly as the renewables penetration rate with other forms of electric power gets saturated, according to Strazik.

At that point, end-users are going to have to pay higher pricing for the last 20% of the US pathway to zero carbon versus what is being paid for the initial 10% to 30% of that journey, he argued.

“That’s what we’re working our way through with the (US) states right now, and I think we’ll get there. But it’s going to take a little while,” said Strazik, “But I’m hopeful the second half of this decade will have various affirmative signals in the US on a restarting industry.”

He cautioned that even as that occurs, offshore wind is a long cycle business. “So, it takes a while to go from orders to commissioning offshore wind plants.”

In locations such as the US Northeast, there is still a “distance to travel between what we will add to our backlog relative to where the end markets are,” he said. “We’re cautious on the timing of when new orders are going to get added.”

While the market determines when it is ready to pay the “appropriate price for offshore wind” and orders materialise, GE Vernova is taking out substantial costs by simplifying its product offering to the 15.5 Haliade-X turbine. It has no plans for greenfield offshore wind factory investment.

The OEM is working through a lot of issues with offshore wind. “The reality is, the strike zone for what we will do in new business going forward is just materially different than the backlog we’re executing on today,” he said.

That is a combination of price, terms and conditions, scope of supply, and scope of what the vendor will execute on relative to its customers.

Strazik said the present offshore wind backlog is unprofitable and got “upside down” due to less than favourable commercial terms and inflationary pressures after Russia’s invasion of Ukraine.

“And it’s fairly new to us, and we’ve been less effective coming down the product cost curve than maybe originally anticipated,” he said. The deals were formulated when the OEM was owned by the former General Electric.

At that time, GE Renewable Energy was bidding activity on a forward cost curve, assuming cost productivity. “The team struggled to reach the cost productivity estimates and often saw as-sold to as-executed margin dilution,” he added.

Looking ahead, Strazik said he has a “lot of bullishness” that offshore wind is going to play a role in the energy transition because he knows GE Vernova can build it cheaper than nuclear and carbon capture for natural gas. He cited the US Northeast as an example.

He argued the offshore wind price comparison point is too often with onshore wind and solar, which is the wrong one. Instead, it needs to be relative to new nuclear and carbon capture.

“I know that we can build offshore wind in the northeast more cost competitively than a new nuclear plant or carbon capture. But that is materially higher in price than onshore wind or solar,” said Strazik.