Whatever Floats Your Wind Turbine

We did the whole podcast without me actually hitting the record button in the studio, So let me just tell you, it was not all that pleasant to go back to my guest and let them know that we had to have the entire conversation over again. And I don't think he laughed at any of my jokes orquips the second time around. But a lot has changed since then, and we are now over a hundred episodes into Switched On, and floating wind technology is now on track to commission

giga watts of capacity this decade. Flying wind, on the other hand, has yet to take off. No pun intended, but we thought it might be the right time to talk about floating wind again, and that's because things like the scot Wind seabed auction. It surprised the world when it rewarded up to fifteen gigawatts of floating offshore wind sites earlier this year. That's more than the existing operating offshore wind capacity in the UK. And that's not all.

France is set to announce the winner of the world's biggest subsidy tender yet this year, and California is looking too soon conduct its first floating seabed lease auction in the US. But questions remain, won't these projects cost a fortune? How big will the sector get and who will be

the leaders? And what's enabling this growth? So to explore this topic, the b andF WIN team published a research note titled Tomorrow's Cost of Floating Wind and looked at a new model that helps users create the cost of building a floating wind project by turning over fifty different parameters. They also published their one h offshore wind Market Outlook.

So from that team, I will be speaking with Louisa M Marin, who writes about offshore wind at b n EF and Oliver Metcalf, the head of Wind at b NF. All of these reports can be found at b enof Go on the Bloomberg terminal at BNF dot com or on BNFS mobile app. And as a quick reminder, we do not provide investment of strategy advice, and there is a complete disclaimer that is found at the very end of the show. But now let's speak with Ali and

Louisa about floating offshore wind. Ali, thank you for joining us, Thanks very much for having us on. And Louisa, this is your first podcast with us, right, so we're here today to talk about floating wind. Now, those of you who have been listening to the podcast for a while or who are happy to flip back through the back catalog will realize that we did something on floating and flying wind in the early early days, which I referenced actually in the opener that you just heard. But I

want to from you Ali and Louisa. Why is it the right time now for us to revisit this topic and why should everybody be interested in an update on the floating wind space. Well, when we first started looking at floating wind and published our first research on it, we kind of put the technology in the same bucket as pine the sky technologies, as you say, like airborne wind kites in the sky, whereas some of those other technologies have gone nowhere, floating wind has come on leaps

and bounds. That's from a technology perspective, and the technologies are getting better and better, much faster than a lot of people predicted. But also governments are starting to get ambitious on this technology as well. So we're seeing governments around the world really start to show commitment to bring down the costs and to really make commercial scale projects of reality. So we're going to come to which governments

in which locations. But before we even go there, can you create a picture for all of us who are listening today on what does a floating wind project actually look like. So a floating wind project is made up of winter and is obviously these similar ones to what you see on onshore and traditional offshore wind projects. These turbines are sitting on top of a floating structure that is kept stable using system of mooring lines which are anchored to the seabed and help limit the floater emotions.

As any offshore wind project, the turbines are connected to each other through cables, but using floating substructures which are moved by waves and currents, requires a special type of cables dynamic cables, which are specially designed to stand this constant moving during the project's lifetime. The cables are their linked together in a substation which receives all the power produced by the wind bines and connects to the onshore grid via an export cable so that the electricity can

reach all of us. So I've seen a ton of offshore wind, but that's the fixed offshore wind space. Actually, just the off the coast of England, we have the London Array and it is massive and you can see it as you fly onto the continent. And that seems to be working very well. So why this innovation and and really what's the incentive for floating wind to come to scale? Why all the household well, the ushore wind industry as a whole is progressed incredibly fast over the

last couple of decades. So costs have dropped around six fourteen for those traditional bottom fixed projects you talk about. But offshore wind also allows us now to install renewable energy projects with the same generating capacity as some of the biggest conventional power plants. But these are so far out at sea they're almost invisible from shore. And all that comes while delivering a new green industry that brings

jobs and all the economic benefits with that. But the problem is you can only install those traditional projects in waters of around deep, whereas you can install floating projects in waters up to a thousand meters deep or even more. So that means you can search more areas to find the windiest spots with the most consistent wind speeds, so

the turbines generate more electricity. But it also means in places that have really steep continental shells, so places like California or the Mediterranean Sea where the sea gets deep really quick, you can take advantage of some of those benefits of bottom fixed offshore wind that I mentioned before, but pretty much in any country that has a coastline. So what if I want to see one, Are there any of these projects that have already been built or

is it still actually a bit pie in the sky. Well, yeah, the project exists, but the sector is still very much of the demonstration scale. So the first project of more than one turbine came online in off the coast of Scotland. It was built by a Norwegian oil company called Equanol. That was five turbines, but the sectors still needs to see a lot of consolidation before we start to see scale.

So last time we did the analysis, there were over forty different floating platform design so the designs for these platforms that turbine sit on top of. Now we'd expect to see a bit of consolidation and the industry to settle on on maybe just a few designs, and we haven't really nearly got there yet. The biggest operating project is the fifty megawat Kin Cardine, Scotland project, which has

six turbines. It was commissioned last year. Now, just for comparison, the biggest cbed fixed offshore wind projects in the world is off the east coast of England. Now that's one thousand, two hundred megawats a hundred and seventy four turbines. So we've got a long way to go until we hit the kind of scale that we're seeing with traditional offshore wind projects. Six turbines does it sound anywhere close to commercial scale? So we don't have those in the water today.

And we have, however, built a tool that will estimate the cost of different commercial scale projects. So how does this tool essentially work alongside the floating wind space and is it able to help us better understand what the costs will be for this in the future. So yeah, last week we released the tool that estimates the total cost of floating offshow wind projects from fabrication to transport

and installation. So to build this tool with follow up bottom up approach where we forecast the price for each subsystem of a flotting inform in terms of material cost of intimerdial components, which then added up to a total capex value. So answering how did we think about these costs.

Initially we asked the question of whether these solutions being used in each sub system have already been deployed in bottom fixed projects or even in other industries as oil and gas, and looked at how mature are these industries and how sensitive prices have been to the scale of deployment. I think a good example of this process is how

we calculated win turbine costs. Most floating platform designs are turbine agnostic, meaning that they can use the same turbine models that are currently being developed and even deployed in fixed bottom project. This way, we looked at a more mature industry that fixed bottom industry, and we saw how turbine prices have been decreasing with the scale of deployment, and how this trend is looking into the future. A

little bit different known approaches followed for floating substructures. As all they mentioned, there are numerous technology designs in the market at different development stage, and so we had to narrow down or research those that have already completed the testing and transition to a full scale demonstration project now for a very short break stay with us. So we've looked at the minutia around all of these different parts and how expensive this can be. We've kind of already

established that. Unfortunately, your model is able to really get at the heart of it. How are we thinking about inflation, because that is definitely something that I think is affecting every industry. There's so many different things actually that are leading into this inflationary environment, and is that something that the model is able to handle. So that's a really interesting question and something that's right at the top of

the minds of renewable energy developers. More generally, commodity prices, other input prices like labor costs, like logistics costs have shot up recently as countries have bounced back from pandemic injuced lockdowns, and so that makes the cost of building some of these projects much more expensive. Now, when we look specifically at floating wind, then some of those projects

are really steel intense. A lot of floating platforms are built completely by steel, and so the cost of these projects can be pretty sensitive to fluctuations in the steel price. So what we did is within our model, we allow users to pull several different tickers from the Bloomberg terminal to choose which steel price from around the world they

want to use to estimate project costs. Users can also input their own cost and so if they're thinking that a steel prices are different, or if they have different access to cheaper steel, then many can generate their own bespoke capex breakdown. I mean, that's how the whole system works,

so it all inter relates, and that's really fascinating. So I guess that then just brings me to a question as we're talking about floating wind specifically within this you know, will it ever be cost competitive or at least as competitive as the bottom fixed offshore wind, which we already

know is more expensive than onshore wind. Well cost is certainly significantly higher today so the early demonstration projects that I've been talking about, they come in around two to three times more expensive than the seabed fixed offshore wind projects that are getting installed today. So reaching commercial scale

is going to be crucial to cutting costs. The sector needs to go from building one of these platforms at a time in a bespoke way to building twenty or even a hundred of these on a on a serial production line. So according to our latest calculations, we never really expect floating wind projects to reach that cost parity with bottom fixed projects, not at least before the horizon of our forecast out of But that isn't to say that the two technologies really need to compete. Different use

cases right exactly. Cost very significantly depending on the project site. So in some cases there may be a floating project closer to shore that's cheaper than a bottom fixed one so far from shore that requires one of those really long and expensive export cables to bring the electricity to the consumer. Also, there are loads of countries with limited space or maybe no space at all where they can build one of these big, industrial scale seabed fixed off

wind projects. So if they want to use offshore wind to support the net zero goals, they're going to have to use floating wind turbines, even if they are more expensive. Yeah, because so much of the discussion around trying to electrify everything relies on us having a lot more installed renewable

energy around the world. So I suppose this is one of those where there are some technical aspects that are standing in our way from a cost standpoint, But we do expect that they will get cheaper and not everything is going to be the lowest cost option because that will have been exhausted at a certain point. So thinking about these costs a little more, and Louisa, I know you've looked into this, what is the most expensive part of the projects? So as all they just mentioned, the

costs for floating winto projects can vary significantly. This depend on how far we are from shore, what is the water depth in the project location, or even where platforms are manufactured, or the topic around commodities and logistic prices. There's being said. I think it is sometimes difficult to define a benchmark project. But looking at project located fifty offshore in a water depth of two hundred meters, for example, we predict that turbinds are the most expensive cost element.

This account for around thirty percent of the total cost, and the second and third most expensive elements are export system and platforms, which vary between twenty and These turbines are dramatically different from the ones that we're seeing in other on and after our projects. I'm just trying to think about, like, are the cost essentially verily consistent, it's just all of the additional installation that's the problem, or they just fundamentally different pieces of kits pretty much the

same kind of machines. Offshore wind turbines are hugely bigger than those you see on shore. Some of the latest models are almost as tall as the Eiffel towers. So when you're thinking of one of these commercial scale projects, think of a hundred Eiffel towers with spinning fans on the top, each sitting on a floating platform. They're the same kind of technology that sits on top of a

typical bottom fixed offshore wind foundation. Although that that you do need to tune some of the some of the kit in the top of the turbine, some of the controller and so the turbine can handle and optimize its output on top of a moving structure instead of one that's fixed at the seabed. And just as a point of comparison, how tall is an onshore wind turbine, but

they reach to around two high. For the taller ones, often they have to rise much higher above the above the trees, so you get much taller, slender onshore wind turbines. The offshore ones tend to be squat and still tall, but they have much longer blades and sit much lower above the sea. So given the casts and the head winds here, there's a lot of I guess, R and D that needs to go into it. Who's looking at this market and who do we think is kind of

men in some respects leading the way. The market is currently dominated by renewable energy developers such as A Withdrawal of and and full We are looking into extend their offshore project in pipeline. But as we mentioned before, oil and gas players are starting to become more and more interested in the floating offshore wind and so companies as Equino,

Totel and BP we're broadening. They're trying to broaden their portfolio and include more renewable energy projects are also becoming more interested in and investing in this type of projects, and some of these companies are getting really really ambitious of renewable energy in general. Now, floating off shore wind or offshore wind in general is a technology that allows them to contribute gigawatts towards their renewable energy targets with

one single project. They're also big infrastructure projects similar to the kind of things that they're working on on their distant offshore oil and gas platform And so that's where we've seen many of the kind of oil and gas majors start to look seriously offshore wind over the last

few years. How well do they perform in storms? So that's a really good question, and I think at the moment, a lot of the projects that we've seen have been installed in the North See now that's a pretty tough environment. Although not in the kind of environment that you see hurricanes like we see in the US in the America's

or typhoons in the in the Asia Pacific. The turbine makers are already releasing turbines that are so called typhoon resistant, and while it may take some modifications to the floating platforms, the turbine technology is there, and so we've already seen some demonstrator scale floating wind projects in Japan. Those are the kind of markets we might have to see typhoon resistant turbines in the future, and slight changes to the

floating wind platform that those turbines sit on top of. Yeah, because climate adaptation is coming up more and more frequently. I think out there in the world, and you know, when we go to conferences, we hear it come up. And I definitely think as we're looking at these things that are going to be in the ocean that may be subject to as you reference, you know, hurricanes or typhoons, I imagine those developing this technology will be looking at that in some details so that they don't have to

go back and essentially fix it later. You mentioned the North Sea, and you mentioned Japan, and you mentioned the coast of California. Where do you think will be the leading countries where these will be utilized. Well, we've seen the early demonstration projects in countries that are willing to pay that premium in order to bring the cost of the technology down. Now many of the leading countries are already thinking about that scaling up that I said is

really crucial to bringing costs down. So, for example, the UK held the first lease auction offering seabed sites that is capable of hosting gigawatt scale floating wind projects. So in that auction at the beginning of the year, sites that could host fifteen gigawats of floating wind one contract.

Now the UK is planning two more of those lease auctions over the next couple of years, and so that's the market was really starting to think about scale at the moment, and we're expecting there will be more than seven gigawats are floating wind in the UK by other markets and markets that don't have sufficient space to install bottom fixed projects but are really looking at how to decarbonize. So the West coast of the US is another one

markets like Oregon, California. The continental shelf drops off really quickly as you move off the coast, and so we're expecting the US to be the second largest floating wind market globally, driven by those states that have really ambitious for renewal energy targets are struggling to build on shore renewables because of local pushback and and other reasons, and so now a're seeing offshore wind and floating offshore wind as a crucial technology to help them get there. There

are markets further afield. So in South Korea, offshore wind farms already received higher subsidies if they're built in deeper waters, if they're further from shore, and so that favors floating wind projects. So South Korea's limited space again to god bottom fixed projects, and so are expecting the market to have an explosion of floating wind over the next fifteen years or so and install three gigawats of capacity now

for a very short break stay with us. So in addition to the costs, which we really have discussed and we know we can look out into the future and try and figure out how these cost of clients might work. What are some of the other bottlenecks that are limiting the expansion of floating wind that we mentioned, You know inflation, which again is tied to costs, but how about things associated with supply chains and delivery and even how the

options are structured. I think the major question than that the floating wind industry has to answer right now is how to ramp up the supply chain in order to commit to such massive scale up and installations. So for most of the elements of the wind farms, like the turbines platforms in the Morning system. The question is no longer if those are technically feasible, but how can we reproduce them at a base that is fast enough to

meet the developers downlines? Right So, for instance, when we look at more systems, the solutions used in the floating wind for objects have been deployed before in ryland gas, but the skill that we're looking right now is completely different. We're talking about commercial skill. Projects with dozens of units lead into hundreds of marine lines to be supplied all

at once. I think another thing we need to look at is who is going to build these projects, but also where, so we need a drastic scale up of fabrication facilities. But equally important is the question of people. So each floating steel platform has as a load of joints that need welding. The industry needs to attract enough talent to make sure we've got enough welders to make those platforms, to make sure we've got enough engineers to

design projects, or construction crews to man installation vessels. There's also a significant lack of suitable ports to support these projects today, So a big floating wind farm will require a port with deep waters with plenty of space for wet storage in the water and also dry storage somewhere in the port. So upgrading existing ports or building new ones is going to require a vast amount of government

and private investment. And how about manufacturing the turbines, do you anticipate it will be the existing manufacturers and their existing locations or is there in this space And I suppose this extends beyond floating wind, but to all wind. Is there a drive for localization as there is in other industries. Well, that's a really good question because a lot of the turbine makers are struggling quite a lot.

Now we mentioned before, but their input costs arising, so labor costs of their factories, logistics costs to deliver components to where they need to be, and then the materials themselves that make the turbines, all of those things have gone up in price, and the turbine makers are struggling to pass on all of those costs onto their customers, especially for contracts that they signed a year ago maybe and haven't delivered that turbine yet, And so they're delivering

on a contract that they signed for a much lower cost in the past. So some of the major supply chain companies are struggling at the moment, and we're seeing in some cases they're downsizing, pausing production at factories or laying off staff at the same time as we need this drastic scale up in order to help them meet the demand of the industry. And so where to place the factories becomes a very important thing because governments are really keen to take advantage of the economic benefits of

shore wind bring as well green jobs, green growth. But if the terb by makers are losing money, then it's expensive to set up a factory, and so there's this midsmatch at the moment between government ambition and this political cell of offshore wind is good for the economy as well as kind of good for decrbonization and the health of some of these supply chain companies that they're expecting

to set up these factories. And we've seen before that also the fact that sometimes government impose local content requirements has not always been so helpful for the off showing industry. Has This might lead to our cost of the components, and so the competitiveness in the market decreases and we see actually rounds of auctions with higher prices and in markets where none of the local content requirements are in post. So local content requirements are requirements set by a government.

Usually that certain proportion of the project's bend has to be in the market where the project is being installed. So a good example of this is in Taiwan, where the Taiwanese government insists that a certain proportion of projects that win subsidies have to manufacture certain components within Taiwan in order to secure those subsidies. Are these going to be competing against other technologies in these actions, or countries

going to start setting up specific floating wind actions. Well, at the moment, they have to, because floating wind is so much more expensive than most other renewable energy technologies that they wouldn't win any subsidies if there are competing purely on cost. But some of the countries that are moving earliest on this are also hoping to establish themselves as future supply chain hubs for the global floating wind sector.

So again they're willing to pay increased costs today in order to establish themselves as the experts in this space and as the export hubs for future floating wind components. As more countries start to look towards the technology, and so there's this race to become the technology leader as well between countries and to take advantage of some of

these benefits of green growth. And also in some of these countries, I guess government and even developers are hoping to revitalize the ideally declining oil and gas sector because floating wind can pick up a lot of technology and operational experience from oil and gas and crew too this opportunity to to increase jobs or pick up from existing expertise.

So not only will some oil and gas companies be able to reuse some of their existing ships and drills and other equipment that they have, you think they'll be able to reuse some of the actual employees that were involved in offshore oil and gas exploration. Absolutely. I was at an offshore wind conference the other day up in Manchester.

The exhibition hall was filled with companies that used to supply only the oil and gas industry and now are aggressively targeting floating wind because some of the expertise dovetails

really nicely between the two sectors. Like I say, the oil and gas industry have been installing floating platforms in deep waters for decades and so there's a lot of learnings that can take place between the two sectors, and it's it's a way that a lot of these smaller supply chain companies that have been serving the oil and gas sector for a long time can start to transition their businesses in a new and greener world as well.

So can we talk a little bit about the future and where you see this going from a timeline standpoint, because so much of the narrative at the moment is benchmarked around these you know, the race and then the race and then depending upon the country from net zero. But this next eight years, this now to is discussed so frequently. What role is floating wind potentially going to have to play? And do we see technology in what is essentially, you know, large infrastructure projects which take a

lot of time. Do we think it's going to ramp up pretty rapidly this decade or is it a next decade thing? So this decade is all about scale up, but we're not really expecting the large commercial scale projects to come online until eight So we still expect bottom fixed foundations to continue to be the dominant supporting structure

all the way out to twenty thirty five. So we're still expecting bottom fixed foundations to make up around nine of the global fleet by thirty five, but in our forecast, floating wind does begin to take market share from twenty seven, so we're expecting six gigawatts operating by twenty thirty, but that's going to shoot up to twenty five gigawatts by

twenty thirty five. So floating wind might not be looking too much at this decade, but we're really expecting a quick pickup in the first half of the trade to happen.

I think we need to keep in mind exactly what we're saying then that installation infrastructure investment has to be made on port vessels, manufacturing facilities, and there's still as we discussed previously, there's still some technical challenges that need to be overcome as an dynamic cables that connect the unit, and also as all they mentioned before, on substations to

link to export the power produced. One of the things that we reference oftentimes when people talk about bird deaths associated with wind turbines is the fact that cats actually

kill more birds than wind turbines do an annual basis. Now, believe it or not, I actually have two cats, so apparently I am not enough of a bird lover, but for those who are given that these offshore wind, floating wind turbines will be so far offshore is one of the potential benefits that they will be beyond where birds are flying or are we looking at the same kind of offshore wind bird deaths or has that not been

looked into? So I think one of the benefits of looking at floating wind is that not only can you look for the windy sites, but you can also start to look at more sites from an environmental perspective as well. So it's part of the permitting process for any wind project, whether it's onshore, offshore, bottom fixed or floating, you have to carry environmental studies to look at what the impact

will be on marine mammals, on birds as well. When you're looking at floating wind, you can look at vastly more sites because you can look at more and more water depths and deeper water depths, and so that allows you to pick and choose where you build a project, so hopefully you'll have the minimal environmental impact as well. So yeah, we can start saving more of those birds. As with any model, which really was the basis of

our conversation today. There are so many different inputs and we're sitting here staring at a model, staring at a computer about this very real and complicated thing which has variables that maybe we don't yet fully understand, especially with something so new. How do you, guys go about collecting information on something so new? Who do you engage with to try and make yourself? I guess it's murder? And how do you find all of these variables to build

this too? We followed a bottom up approach, so we forecast the price for each system of a floating wind firm. We looked at material costs of individual components, We looked at manufacturing prices, and we added all that up to create our capex cost, the capex of a floating wind from and when we ask ourselves, how would we look at the individual costs? So we looked into other dissolutions were already being used in bottom fixed projects or even

in other industries as well. Guess at how mature are these industries and how sensitive prices have been to the scale of of the ployment. So I think a good example of this is how we thought was It was out thought process behind the calculation of wind turbine costs. So most of floating wind platform designs are turbine agnostic, meaning that they can use the same turbine models that

are currently used in fixed mode projects. And so this way we were able to look at a more mature industry and see how to bind prices have been decreasing or not with the scale of deployment, and how this

trend is looking into the future. There's other components of the wind farm in which we don't have such a good visibility on the cost trants, and so we we used our network of clients who are currently working on this type of projects and we changed and thoughts with them and how do they look the prices look like for some for the components nowadays, if they see that they will come for them, they will come with the premium in the future, considering their deployment in flooding projects

rather than fixed bottom ones. That was a bit of of our process. I think those two things are super key, like leveraging our network and like the people side of the question. And then also we just got down and dirty with a model and looked at each subsystem and used any data that we could that was out on the market, whether it was on a floating project and oil and gas project or or on a bottom fixed

turbine for things that are transferable. So since we're revisiting a topic, tell me we also in our previous episode on floating wind, it was about flying wind as well. Is that still pie in the sky? No pun intended. I think that's probably better left to kids with their kites. It's a long time before we'll see big ebble wind projects. In my opinion. Yeah, I'm pretty new to the industry, but since I started working on our show and two years ago, I've never heard about that topic. So I

think that tells a bit where it's going. Okay, alright, so coming to the deep ocean near you, but not to the sky, got it. Thank you very much, Ali and Louisa for joining today, and we look forward to seeing how these projects come along over the course of the next several years and whether or not they will be coming to scale at the beginning of the next decade. This episode was produced by Sanjeet Sangara at Bien e F. Today's episode of Switched On was edited by Rex Warner

of gray Stoke Media. Bloomberg An e F as 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 recommendation as to an investment or other strategy. Bloomberg an e F 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 of this recording is expressly disclaimed.