The wind power industry is facing major cost headwinds. What’s going on (and what can be done)?

A storm is brewing for the global wind power industry, with economic headwinds bringing numerous projects to a virtual standstill.

More than $30 billion in investment has been put on hold as at least 10 offshore wind projects in the US and Europe experience delays, according to The Wall Street Journal.

Developers of onshore and offshore wind projects are facing rising costs, but offshore investments are bearing the brunt of the current industry challenges.

So, what exactly is happening, why is it important, and what needs to happen to safeguard this vital part of the global energy transition and keep the turbines of tomorrow turning?

Soaring inflation, supply chain disruption, high interest rates and lengthy waiting times for permits and grid connections are creating a perfect storm for wind project developers.

In recent years, investors have been drawn to the wind industry by falling project costs and the prospect of new wind farms generating an abundance of cheap, clean energy. But that was before Russia’s invasion of Ukraine sent energy markets into turmoil and inflationary pressures hit many parts of the global economy hard, straining project supply chains and increasing raw material and labour costs.

Alongside these disruptions, the wind industry’s race for scale is placing added pressure on turbine manufacturers to produce ever-bigger rotor blades. Larger turbine blades harvest more energy, which has helped reduce the cost of wind power by 60% in the decade to 2021, according to the International Energy Agency.

However, with contemporary turbines sporting masts high enough to tower above the Statue of Liberty, and blades the length of football pitches, specialist vessels and infrastructure are needed to transport and install them.

For vessel makers, investing in new vehicles capable of carrying the latest turbines runs the risk of them quickly becoming redundant as even bigger turbines appear on the market. Other parts of the supply chain are also under strain, as large-scale turbines require bigger ports, reinforced quaysides to carry additional weight and other new logistical challenges.

Back when project outgoings were lower, many wind farm developers entered into long-term agreements to sell electricity at low fixed prices. Soaring costs mean these electricity prices are now unviable.

Swedish company Vattenfall estimates the costs of building an offshore wind farm have increased by up to 40% this year, making a planned 140-turbine offshore wind development in the North Sea unfeasible.

In the US, Norwegian energy company Equinor and British multinational BP have three wind projects in development off the coast of New York that would have enough capacity to power around 2 million households. However, the firms say that unless they can renegotiate their power price agreements, the projects could fail to attract sufficient financing.

What’s happening in the global wind power industry could derail global efforts to achieve climate targets.

Renewable energy investment needs to triple by the end of the decade and 90% of global electricity generation needs to be renewable by 2050, according to the International Energy Agency’s Net Zero by 2050 Roadmap. Wind power forms a significant part of the projected expansion in renewable energy sources.

Installations of wind power capacity need to grow fivefold this decade to help the world limit temperature rises to 1.5°C above pre-industrial levels.

Project delays could leave us even further from achieving what is required and undermine the affordability and sustainability of energy – two elements of the “energy triangle” outlined in the World Economic Forum’s Fostering Effective Energy Transition 2023 report. The energy triangle, shown below, highlights the elements needed to achieve the energy transition.

With such a complex set of challenges, there is no simple solution.

“Offshore wind developers are not going to invest if project economics don’t work,” Rebecca Williams, Head of Offshore Wind at trade group the Global Wind Energy Council told the Financial Times.

Yet despite wind power costs increasing to the point where some projects may become unviable, it remains critical to invest in scaling up renewables to help combat the climate crisis.

What’s clear is that no company or government can go it alone – the way forward depends on industry and corporate stakeholders working together to cross-fertilize ideas and bring about system change.

The Forum’s Fostering Effective Energy Transition 2023 report says that partnerships and policies will be at the core of shaping a balanced energy transition. This can enable solutions to be found to issues such as regulatory and permitting challenges – both of which are necessary hurdles to jump, but which can sometimes cause long waits for project developers.

The wind industry also needs to find innovative approaches to reach the scale and speed of development required to achieve climate goals. Public-private collaboration is only going to help with this.

A good example of this public-private collaboration is the North Sea Energy Island, which sits approximately 100 kilometres off the coast of Denmark. Leading offshore wind developer Ørsted and various partners are creating an artificial island that serves as an energy hub connecting a network of 10 offshore wind farms. The electricity generated will be supplied to neighbouring countries.

More energy islands are planned in the North Sea and the Baltic Sea, and are due online in the early 2030s.

Collaborative projects like these spread costs and risks, and enable stakeholders to share knowledge and best practice to speed up deployment of clean power capacity.