The '19-vessel gap' threatening global offshore wind targets

The global offshore wind sector will have to pursue its ambitious short-term growth targets while coping with a shortfall of about 19 installation vessels for foundations or turbines, according to new research by energy consultancy group Wood Mackenzie.

Supply chain constraints are a growing concern for offshore wind developers and it is the shortage of high-capacity vessels for installing foundations and turbines that is emerging as the most critical threat to their expansion plans.

“This issue is worrying offshore wind developers and it is increasingly occupying the minds of contractors and banks as the implications of this shortfall become clear,” said Finlay Clark, senior research analyst for offshore wind at Wood Mackenzie.

The 19-vessel gap, which does not include burgeoning demand for transport and service vessels will feature in a comprehensive sector-wide survey soon to be published by Wood Mackenzie. The data is based on a study of the global market, with separate research under way for the Chinese market.

The offshore wind growth lag depressed dayrates for vessels and squeezed margins for owners, making it more difficult to secure long term charters and to get financing for new vessels, but this is changing fast.

Demand, which was already recovering as a result of climate change commitments, has rocketed since Russia’s invasion of Ukraine pushed energy security to the forefront of policymakers' minds.

“Last year, targets for offshore wind were up fourfold from where they were in 2020, and this really shows the impact of the response to Russia’s invasion of Ukraine. The whole supply chain is ramping up or trying to ramp up to meet that demand,” says Clark.

WoodMac are seeing a heightened interest from contractors and investors homing in on opportunities to invest, he added

While the sheer volume of new demand is straining the whole supply chain, the vessels bottleneck is exacerbated by the shift to bigger wind turbines.

“So now you are ramping up at the same time that your experienced legacy vessels are being squeezed out of the market due to load capacity," Clark says.

There has been some response to the demand for bigger WTIVs as a handful of leading wind installation companies went ahead with new orders for a next generation of vessels, including several hybrids able to install both foundations and turbines.

“It was a buyer's market, where the developers were able to go in and squeeze the suppliers but, looking ahead to 2030, that has completely flipped around,” Clark adds.

“If you factor in between $300m and $400m per vessel and three to four years to finance and build a vessel, you are talking $6-$9bn just in capex for new vessels required by 2030.”

Sign of the times

The clearest sign of this change came earlier this month when German developer RWE Renewables signed up for the exclusive use of two next-generation wind installation vessels from Jan de Nul Group, a Belgian offshore services provider.

Other new WTIVs have secured clients. Van Oord's giant Boreas jack-up also been booked up by RWE, for the Nordseecluster wind project in Germany starting late 2024, and will boast the biggest crane and loading capacity yet seen in the sector.

Van Oord is already carrying out sea trials on a second new generation cable-laying vessel Calypso, built by the Vard shipyard group in Romania and Norway.

One of the two big wind foundation vessels under construction by Norway's Havram will also go to RWE.

Danish wind developer Orsted has booked Havram's other big WTIV and one of Cadeler's two forthcoming F-Class hybrids from 2027, with options through 2030.

Maersk Supply has ordered a WTIV vessel from Sembcorp Marine (Seatrium) to work in the US, where the Danish offshore vessel supplier has won two major installation contracts with Equinor and BP.

Although being built in Singapore, it is conceived as offering a "feeder" concept solution to potential Jones Act constraints.

“We saw very little investment in new vessels since 2015, but in last 18 months it has picked up as supply and demand really became pinched. Now, what we're seeing is developers both going further out, either buying or booking reserving capacity for vessels for wind farms that may not even have reached FID yet,” said Clark.

Unsurprisingly, dayrates are also on the way up. Although rates are often kept confidential, Cadeler offered a glimpse of the trend when it announced a contract to transport and install 26 turbines of 11MW each at Denmark's Aflandshage wind farm, supplying one of its O-type installation ships at a rate of more than $412,000 per day.

From projects to charters

There is considerable curiosity among competitors about the undisclosed dayrates for the Jan de Nul deal, and how RWE intends to get full use out of the vessels. The charters contemplate year-round work, with scope for operations and maintenance work as well as installation.

Clark added: "Developers are identifying an increased risk of not securing the most advanced vessels required for upcoming projects towards 2030, which is leading to longer term charter agreements."

Looming bottleneck

"If you add up growth projections, whether looking at Europe the North Sea, the Baltic, the USA or Asia-Pacific, the supply chain is not nearly enough big enough to deliver," RWE's offshore wind CEO Sven Utermöhlen said during the Global Offshore Wind forum in London.

The RWE executive reckons the offshore wind sector has faced cost increases of between 20% and 40% since Russia invaeded Ukraine.

As well as helping meet RWE's own requirements, Utermöhlen said that the long-term contracts helped change the profile of WTIVs from a financial perspective, ultimately facilitating investment in the supply chain.

Clark couldn't agree more. "Signing off on years of revenue is a huge open door to reinvest in new vessels, and others will be very keen to follow... If you can go to investors with long-term installation charters that maximise the utilisation for your vessels for the first five to six years of operations, that offers favorable conditions for your business case," he says.

The merger was a classic consolidation move in a fragmented market, making it easier to optimise fleet management and operations by using a mix of heavy-lifting and legacy vessels for different components of a wind farm, Clark reckons.