The Coming Boom in Offshore Wind

changed and offshore winds in twenty fourteen. For one, the turbines has gotten a lot bigger, meaning more capacity per turbine, meaning fewer turbines are at the same output. And two, the industry is really starting to take off this year, being IF expects ten point six gigawatts to come online globally, up sixty six percent from last year, and the pipeline

of new projects just keeps growing. Today on the show, we've got Image and Brown and Chelsea Jean Michelle, offshore wind analysts for ben F. They'll tell us about what's driving growth in offshore wind, some of the challenges facing an adolescent industry, and who stands to gain from all of it. This episode is based on the offshore wind market outlook for the first half of twenty twenty one. Being IF users can find this report on beanof Go

on the Bloomber terminal. Being If to com and being f Mobile as a reminder of being does not provide investment or strategy advice, and you can hear the full disclaimer at the end of the show. Him Mark Taylor, and you're listening to Switch on Being a podcast. Imagin, Chelsea, Welcome, Hey Mark, Hey Mark, thanks for joining. You just mentioned this is your first time on the show. We're really glad to have you on. Excited to be here. Yeah, thanks for having us. Okay, Imagen, can you just start

us off? You know why offshore wind? We have wind already on shore, why do we need to put it off shore? So? I think there's a few kind of key advantages for offshore wind that we really see. So one of the big ones is that offshore wind comes at scale. So when you're thinking about offs your wind,

you're talking like giggle watch scale projects. So that's kind of a similar size to what you're talking when you're thinking about nuclear reactors, except in an offshore wind project, you don't have that nuclear waste angle, and offshore wind can be built much bigger because it's the sea, so there's kind of less space confinedness than you would have when you're building on land. At the same time, when you're building at sea, you can use much bigger turbines.

So that's because you can't see them. So the typical biggest offshore wind turbine that we're seeing today is around fifty megawatts versus what you see on shore, which is around five So they're about three times the size. They during around three times the amount of power. So scale is kind of one of the biggest advantages. So the biggest advantages that it's big exactly, it's just an assumption I have. I guess it's just something in my in my mind, I guess that it's windier out at sea.

Is that true? Also, Yeah, definitely that is true. So I guess if you were to take to like, for like turbines one on shore, one offshore, the one offshore would just spend more times during the year, okay, thereby producing more electricity Exactly. On the show we put out on the second of August called something like Energy Transition Fund Frenzy I believe it was called, we mentioned that there's going to be just a ton of wind projects

built in the next thirty years. We put it on the order of something like sixty eight thousand wind projects, of which we think about seven thousand of those would be offshore wind. Basically, you know that that's Mark Taylor's back of the envelope calculations, But really the point is that it's going to grow like crazy. So immagrant, can you keep it going and and tell us kind of where we're at today and how big you think this

market is going to get for offshore wind specifically. So where we are today, we're around thirty six gig awards, which is the equivalent to around eight thousand turbines that are currently operating in the waters. Almost all of that is currently confined to Europe. But over the next sort of ten fifteen years or so, we expect the market to grow around eleven fold to reach over four hundred gigs. So there's steep growth projected, and this scale is kind

of twofold. So one is that we're expecting more markets to start building offshore wind. As I said, most of its can find the Europe at the moment, but we're expecting markets in a pack and the Americas start to build off shore and The second angle is that there's a building it currently, are just going to build more

of it. So where will this growth start? You mentioned in your market outlook that you know this we're based on this discussion on you said that what ten point seven gigawatts have capacity coming online globally this year, up sixty six from last year. So where is that growth happening? Is it still just in Europe they're just building more? Is are we seeing new markets opening up? So this

year in particular will be a really big year. As you touched on eleven gigawatts of of show capacity coming online, which is around growth on the existing fleet. The majority of that is actually coming online in China. So a lot of the projects in China are trying to rush to come online this year to get hold of some expiring subsidy that the government is offering, which ends at

the end of the year. And we saw that last year in the Chinese market for onshore wind Right, that they were raised to get done by these subsidies and they put on what like a hundred gigs and three months or something like that. It was bonkers. It was a crazy, crazy build rush. So I think the kind of rush off shore will be exactly the same, and we're expecting China just to go crazy. Wow, that's really cool.

That was always seemed to be a question in offshore wind, is that, you know wind, is China going to pick up the torch and carry forward? It seems like they've they've started. Where else are we going to start seeing growth in this sector? I think that a really great place to look for huge growth is the US. So right now, we're currently at about forty two megawatts, which

is equivalent to seven turbines in the water. And so the Biden administration earlier this year put out a target for thirty gigawatts by so you can really see that the government is really shooting for a huge amount of growth, shooting for the stars. Yeah, you're you're going from essentially zero to thirty gigawatts. And so if we look at how it's going to grow, we're going to see a lot of the large scale installations happening from onwards. But that only gives you about six to seven years to

achieve that thirty giga watt goal. And so what that means is the US has to average about five giga watts per year to meet that thirty giga watt target. But you look at some place like the UK, which is one of the most mature offshore wind markets in the world, and they have an average run rate of about three giga watts per year. So putting that into perspective,

you can really see how large the school is. But that being said, even though it's quite ambitious, it really um sends a clear signal to developers that the US is in it and that they're in support of growing the market. What do you think so currently VNS is forecasting about twenty six giga watts by twenty so we do think that they will likely miss the target. But that being said, states already have set multiple offshore wind

targets before the federal government did so. Looking at the big ones, New York nine giga watts by five, New Jersey seven and a half giga watts by five, and then you also have Massachusetts in North Carolina with pretty large targets. But you'll notice that these states set the targets for instead of and so while these states might achieve their targets, the federal government one is a little

bit more ambitious. Do you think that will drive states to to raise their game or do you think they'll stick to the plan or do you think more states will come in. I guess there's a few more coastal states that could be candidates here. Well, I guess you could think of it kind of two fold. So one is that there's no there's no set way that a state is going to achieve their target. It might happen that New York achieves nine giga watts by two so

they hit it three years earlier. It all depends on how much capacity they procure and each solicitation that they have. But then kind of thinking about the new states point that you mentioned, North Carolina recently announced their target for eight giga watts by and two point eight giga watts by twenty thirty, I believe earlier this year, and this is after states had already been announcing many of these targets. So North Carolina is a fairly new state in this respect.

Then you can also pivot to looking at the west coast. So California they have a bill where they're looking to set off shore wind targets. They've walked back a few of them. Initially they were going quite big, ten gigawatts by but they walked that back and so states are

definitely interested in offshore wind. New Or States especially or again also has a bill that they recently passed looking to procure three gigawatts by So you have a lot of different things, a lot of different elements in play here, but the moral of the stories that states are interested in offshore wind and they're shooting for the stars with

these targets, that's amazing. I mean, like we were just commenting before we started recording that TELSA, you are an offshore wind analyst based in New York, right, and just a couple of years ago that would have been an oxymoron to have an offshore wind analysts in the US. It's it's really a testament to to where the industry is going. I think, yeah, I agree. And when you look at the history of offshore wind in the US, right,

it's really plagued by false starts, delays. You think of Cape Wind, which was initially conceived in the early two thousands and went through over a decade of trying to get permits, trying to get on tracks, trying to simply get through the courts right and to get this project built, and it just didn't end up happening. But I think what's different now is that you know, states are on board, governments are on board, developers are interested in the market.

The stars are kind of aligning for US offshore wind now. So it's I think it's ready to take off. Now. The history is sad, but you know, I think it's kind of like a redemption story for US offshore wind, and you know, I'm ready. I'm excited to see what happens. Well, there you go, that's all you need. Let's talk a bit about how this is going to get done before we get into any other markets. I want to stick

on the US for just a second. So Charles Barkley always says this thing, no free pub you know, no free publicity. There's this really fantastic podcast I've been listening to lately called Windfall from Outside in from what New Hampshire Public Media. They do a great job. They did a deep dive on Cape wind, you know, and who stands to gain and and not from from offshore wind

in the US. And one thing that they talked about was how this market will be supplied so that most of the you know, developers for these initial projects are coming over from Denmark. Some of the ships you know that they're coming over to do the installations are also going to be coming from Denmark. Two questions, is the industry globally big enough to support these ambitions in the

US and elsewhere? And second, if the ships are going to come over from Europe to supply US projects on the East coast, who's going to supply the ones in the West Coast? Are they going to be able to reach, you know, and and go through the I guess the Panamenna Canal or I don't know how how is that going to work? Mark? You touched on a really interesting point, and I think that's something that a lot of people

in the industry are curious about right now. So with the US supply chain question, there's going to need to be massive build out, right, Like we imagine talked about the massive growth that we're expecting. In order to realize that, you have to have a supply chain to make that happen. And so, for example, let's let's look at this shipping question. So right now, there are already a lot of US ports that are being developed to support the growing offshore

wind industry. And in the US there's also an interesting tidbit called the Jones Act, which essentially means that if you're traveling between any two points in the US, that ship needs to be U S crewed, US flag, US owned, US built, and so that adds a whole other dimension to the U S story. So there's already a wind turbine installation vessel being built by Dominion that's going to be used in the first couple of oshore wind projects

in the US. But even then, you know, as all of these projects start cropping up, and then you have the European ships that that also need to build projects, there's going to be a squeeze in resources that we still need to address in terms of the East Coast VERSUS West Coast question. You know, I think that's that's still up for debate. It's still up for grabs, especially when you start to think about places like YI that already has some interesting offshore wind areas that the Bureau

of Ocean Energy Management has identified. How are they going to build off shore wind They're very very far out from the US mainland, but also any other any other place, So that that brings up another interesting question for a

supply chain. So that really seems like an opportunity on one angle and also a squeeze on the other You know, the President Biden said, what a couple of weeks ago, there no reason a wind turbine couldn't be made in Pittsburgh instead of Beijing, right, is are we seeing that to our US developers stepping up for their market or are we seeing Japanese developers stepping up for the Japanese market? You know, how's the who's winning and supply or who's

stepped to win and supply? Yeah, I guess speaking a little bit more about the U S angle, developers are committing to local jobs, local manufacturing. So there's a monopile factory that's being built in New Jersey. I believe what's a monopile factory? Sorry, oh yep, let me backtrack. So when we talk about off shore wind going to star it that over. When we talk about offshore wind, there's two types of foundations, bottom fixed as well as floating foundations.

And for bottom fixed foundations, one of the most widely used ones is the monopile. So think of the turbine being connected to a connector piece known as the transition piece, and then connected to the monopile, which is essentially the long foundation think of it as like a long pole that's then hammered into the sea floor. So in that case, the monopile factory would be built in New Jersey, as

I mentioned. And then there's also a steel factory that was recently announced by um U s Wind, who is a developer that's planning on building a project off the coast of Maryland. So to answer your question, yes, there's there are some elements that will be built in the US, but again it's still has to be built out widely, and the earlier projects will likely depend a lot on European manufacturing and supply chain. The ships have to take as long as the projects themselves. I assume are there

enough ships to install all of these projects globally. Well, again, it's another interesting point, and I think I'll pivot to image and who maybe might know a little bit more. Sorry, I'm just I'm just going down a rabbit hole here. This is this is fascinating guys. Sorry. So the biggest problem with the ships is that they're not big enough to install the latest, greatest, biggest turbines that are hitting like fifteen megawats, right, something like that, Exactly when they

hit fifteen megawats. The big thing is they get much taller. So in order to install them, in order to lift them on top of that monopile piece that Chelsea was talking about, you have to have this big crane that does it. And the ships today essentially are not big enough to lift them high enough to actually get them on top. Okay, so the upshot is so the upshot is we need to build more ships, but more more fun ships too. I don't know if you if you've

seen these ships, they're definitely worth googling. They look like kind of like robots that are stuck in the water. The way they operate is that they sail out to sites with their legs kind of stuck on the bow, and I get to the project site, they put their legs and then pushed them down and put them in the seabed, and then they jack up the bow of the ship so that they're kind of like a stable letting playing field for the ship, and they lift the

turbine tower on top of the foundation piece. Wow, have you seen this? Have you? Have you gone out and you know, watched this happen in person? In my next life mark in your next life, man, you should go do it. I mean back when I was I used to be a geo thermal analyst and there's just so much value in going out to the actual sites and seeing them build the thing. Anyway, for another day, Um, and we'll do a podcast on location. How about that.

Let's do that. It sounds good. Let's talk about who's who's paying for all this for a second, so you know, I any reference to earlier, but again, August two, we did a show energy Transition Fund Frenzy, and in it we talked about how, you know, there's been thirty billion raised in the past couple of months for renewable energy or transition fund raised by asset managers right to invest

in renewable energy projects really kind of specifically. And my question is, first, you know, do they have an appetite for offshore wind or is it just onshore? And if not, you know who is paying for these these offshore wind projects? Yeah. So offshore wind, I think is a funny one because it hasn't been around for that long and it's still, in many eyes, a relatively risky asset class for many people.

So having said that, the industry is maturing and we're seeing more and more projects get built, So those kind of risks are essentially being taken away, and so we're starting to see the spectrum of investors that are coming into the industry broaden. Traditionally it used to be kind of closed club of critique players, your likes of Asted for example, who kind of took hold of the industry. Now we're seeing it kind of broadened out, and we're starting to see new players like all in Gas come

into the sector and start investing the projects. So are these mostly going to be done on balance sheets rather than you know, somebody coming in and providing debt or equity to these projects, because I imagine BP is just going to pay for you know themselves or Equino or whatever. Right, I think it will still be a combination actually of

the two. So when we do outlooks, we kind of look at the split between project finance and balance sheet finance, and project finance is taking more of the more of the pie as we go forward, but I think balance sheet finance will still be part of it, particularly as you've mentioned with these big players that are starting to come in that can from them. Can you talk about

that just for a second. I mean, one thing to just caught my eye, I was looking at where was I linked in, and I just saw a post from a former colleague that just said, Hey, we're hiring a hundred people for offshore wind at BP. Come come join us. You know, as it go out, that's that's quite a bit in one chunk, and my thoughts went to, well, they must be doing that to compete with what the

Norwegians with Equinora, right, is that right? Or what's going on with these oil and gas players getting into this market specifically? Well, BP is a funny one because it's actually partnered up with Equino, so I guess particularly in the US, so it's uh, maybe not as much a yeah,

a foe as a friend. But I think the whole transition of these oil and gas guys coming into offshore wind is the fact that they under pressure from shareholders to kind of realign businesses right and invest a lot more in renewables, and they see offshore wind as a really attractive way of doing that because, as I touched on before, offshore wind brings scale, so you can buy large scale projects or invest in large scale projects, which brings gigga watts into your portfolio. So if you've got

a giggle wat target like BP of fifty gigawatts. By by developing gigga wat scale assets, you can kind of accumulate them quite quickly. Yeah. I'll also just add that there's often an element of knowledge sharing that oil and gas companies like to talk about. So if you look at building an offshore oil and gas rig, a lot of oil and gas companies see that as an opportunity to leverage knowledge that they've learned there in the offshore

wind industry. And if you look at the eighty eight megawatt high wind camping project that's being built off of Norway right now by equinor those offshore wind turbines are actually being used to power an offshore oil and gas rig. So that's an interesting tibit there that I think that oil and gas companies also see an opportunity. Okay, that makes sense. Okay, let's close up this section and just

say like, okay, I just want your take. So, given what we've talked about, you know that we're saying like the industry has all these targets, you know, and growth, ambitious growth plans, all this stuff, but there's also it seems to be potential shortage to supply. I don't know, what do you think. Do you think this is this is a fad? Do you think it's here to stay? Do you think this growth is sustainable? Do you think you know these markets can reach the stars as they're

as they're trying to do. Yeah, I think it's I think it's his to stay. I think we're seeing a lot of ambition from government pivot towards offshore wind, which is really exciting for the sector. At the same time, when we talk about think about just a number of turbines in the water. Although we're projecting large scale gigawats, because the turbines are getting much bigger, what that actually

means is you need fewer of them. So in terms of actually supply challenges of getting more turbines in the water, there's actually a few essentially of them that would otherwise be needed. So for us, I think, yeah, we're seeing real ambition from government stepping up to set these goals, and we're actually seeing more developers want to come in and develop these projects. So I guess it's good news. Yeah.

I also think when we look at what happened last year with the pandemic, we kind of saw that the supply chain was really ready to ramp up for a huge year of installations, and so at least in the in the global wind industry, and so I think that there's definitely opportunities for you know, us to be surprised, for us to see supply chain really step up to the plate to realize these projects. Now, it's not going to happen by magic, of course, but there's there's potential

for growth and for it to be realized. If you didn't know what a monopile was before passing play on this podcast, we're going to take a short break and when we come back, we're going to talk about some of the tech involved in offshore wind. So we'll talk about monopiles, we'll talk about floating wind, all of it. Stay with us. So in the top we just briefly mentioned that these turbines can hit what fifteen megawatts apiece? Right,

those are giant? Can you try to put that in perspective for us, You know, how big are these things? So a fifteen megawat turbine today is around two hundred and sixty ms high from the base of the turbine to the blade tip when it's right at its top and for reference, the Eiffel Tower is around three high. Okay, wow, so we're talking pretty big. The big thing here is

we expect them to get bigger. So we did some estimates at benf and we expect turbines to get to around three seventy five ms high by okay, so taller than the Eiffel Tower. Eiffel Tower exactly wow, and quite a bit taller. Geez. Is that the limit? You know? Is there a limit to how big these things can get? When you're looking at a three eight meter turbine, how much power output do you think that would would you expect that to produce? So the key thing about offshore

turbines is they're not really constrained in size. So unlike turbines onshore, you're kind of constrained in size because people don't like to see them. So you don't like to see a huge turbine in your backyard. But at the same time, you're kind of constrained in size because you have to transport the turbine components via road, which means that sometimes it's almost impossible to get them under bridges or just almost impossible to get them through various corners

of roads. Whereas offshore you just need to transport them by a ship and there's less constraints there. When we're talking about a turbine that's in heights, we're suggesting that's around thirty five megawats, which is pretty big. So if you're looking at a gigger what scale projects that we're looking at the moment, you only need around thirty turbines.

I heard that in the you Know the Outside in podcast I mentioned earlier, is that when they had to reassess the Vineyard wind project because it hits some hit some snags, the technology it advanced and they went from having to do a hundred turbines down to like sixty seven or sixty two or something like that. So bigger outputting more output turbine, fewer turbines. That's that's pretty cool. How does that impact cost? You know, are these turbines?

Are these projects more expensive? With bigger turbines are even out as it cheaper? How does that work? No, that's one of the big drivers reducing the cost of offshore wind. So bigger turbines means you need fewer of them, So that means you need fewer cables, you need fewer monopiles, you need fewer you need less time offshore constructing them, and that ultimately means that the cost of the project is lower. So bigger turbines are the key driver behind

reducing costs in the industry. Can you talk about that just a bit more, like, how does that relate to the cost of other renewable technologies like solar or on shore wind. Offshore wind is around double as expensive as an onshore wind project. But do you make up for it because the ind is blowing harder and and more often you know, out at sea, or how does that work? Well? The key thing is that because they are more expensive, governments have had to subsidize them. They've done that in

kind of two ways. Governments are either subsidizing projects by paying developers a premium for the power that they're actually generating. Or movements have subsidized the projects by paying for some of the upfront costs of the project that the developer would otherwise would have had to have paid for. Traditionally, they kind of have done this by paying for the

transmission element of the projects. That's the big cable that like brings the power back to shore from the offshore wind farm, and that's actually a pretty substantive cost, particularly as these projects get further from shore, that cable can be around a third of the total capex of the project. Know how far out at sea are these projects? How long is that cable? You know? Because I guess there's a question of are they and I sor you know, and you know, visible from shore and all that stuff.

Where do you have to put them? So projects getting built today are around two kilometers from shore. That's the furthest we've seen so pretty far. And they're getting further from shore because you can access better wind speeds there. A lot of the early projects were close to shore. Um that's one because they were using smaller turbines so they weren't as much of an aysore. But it was

also easier to operate them close to shore obviously. So my instant question when you mentioned how how far out they are from shoes that cheese doesn't the sea floor? Isn't the sea floor like pretty pretty far down there at that point? Like I remember one time I was in where was like Turks and Caicos and you can see the continental shelf just drop off and it just goes down forever. Does that make things more expensive or does it open up for things like like floating wind.

Well Mark, You're exactly right. As projects move further out, usually you're dealing with a lot deeper waters, and so with deeper waters you can't necessarily use a monopile or a bottom fixed foundation anymore. You do have to pivot

to floating wind. And the threshold that we usually um look to is about sixty or two feet, and so that's kind of when you think, okay, I can no longer use bottom fixed let me pivot to floating and floating wind is essentially think of it as like a turbine on a boat, and so instead of it being fixed to a foundation that's then fixed to the sea floor, it's instead fixed to a foundation that's kind of somewhere along sea level, and then it has a counter weight

to balance out the weight of the turbine itself. Depending on the design, it might be underneath the underneath sea level, kind of working around the surface of the sea, and then that's then attached to mooring cables which are then anchored into the sea floor. So it's a lot more complex engineering wise, and it's also a lot more expensive

than bottom fixed foundations. However, as image and mentioned, the further out that you go, you can also achieve greater wind speeds, more consistent wind speeds, and so there's some benefits there. So it just seems like a big job for the people that are figuring out the optimization between line losses, water depth, turbine size. Basically, the engineers of figuring out the optimal locations and specs for these projects.

Right countries around the world usually have opted for bottom fixed right because it's more mature, it's cheaper, it makes sense. But then you also have some regions, so take the west coast of the US where bottom fixed foundations are

not an options. You have that steep drop off the continental shelf that you mentioned, and if they want offshore wind, they're going to have to install floating and so it's kind of you know that that narrows down the engineering question a little bit more when you when you have to ask yourself, what's possible for us to do with

our geography. Flitting wind opens up a whole load of new markets the west coast of the US, some sites in Japan, South Korea, some sites in Mediterranean, in France, Scotland. So floating wind is a kind of alternative technology which could potentially grow the sector much further than what bottom fix could. Okay, so I got one more question on on tech or you know, project engineering. Once I was flying,

I hated relative thing, back to personal whatever. But I remember one time I was flying from what Portugal back to London and I just noticed these giant offshore wind farms that were just taking up a lot of space. So can you comment on just like how much I guess see area, I don't even know what you call it that these projects take up. Yeah, these four projects can be huge. So the biggest one in the UK, which is owned by sec Equano or in any spans

pretty much the area of Greater London. So that's over one kilometers squared. If you were to put that into football pitches or soccer pitches for you guys in the US, that's over two hundred thousand soccer pitches. And so does that mean are we going to see at some point We're probably gonna see a repowering of plants like that right where you'd have bigger turbines, you know, they take down all the old turbines and rep raced them with bigger ones that get the same output for with a

smaller footprint. Is that right? Or is they're going to leave those there forever. So turbine technology now kind of lost around thirty years. A lot of the sites are taken for thirty years. So we'll see projects repowered on that basis, and I guess in thirty years time we'll let you know how big turbines are at that point. There you go. Hey, I got one more question for you guys. So you're not an offshore wind analyst, you're not any analyst at all, but you're still an offshore

wind what's the one job you choose. I'm a turbine technician, definitely. Oh I was going to choose carabine technician. I'm standing on the top of this fifteen megawat turline and maybe fixing the gearbox. Yeah, you just have to go out there and fix the turbines and you get to be on top of the world amongst these huge structures. It's kind of great. Okay, So both of you turbine technician.

All right. I think the main thing we've learned today then everybody, is that neither Imagen nor Chelsea are afraid of heights. Okay, Imagen Chelsea. Thanks for joining. Thanks so much, Mark. It was a lot of fun. Thanks Mark. This week's show was produced by Ava Gonzalez E SLA and edited by Rex Warner of gray Stoke Media. Bloomberg an E app is a service provided by Bloomberg Finance LP and

its affiliates. This recording does not constitute, nor should it be construed, as investment advice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg an E should not be considered as information sufficient upon which to

base an investment decision. Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly discla