Offshore wind will attract capital expenditure (Capex) of $211bn (€189bn) between 2020 and 2025, according to new research by Wood Mackenzie.
The researchers said investors traditionally targeting the oil and gas sector will find offshore wind increasingly attractive, helping to drive Capex.
“There is limited crossover today, but first movers have gone with the wind and more will soon follow,” Wood Mackenzie said.
It said offshore wind investments offer greater certainty and transparency because deployment is largely tied to government incentives.
About 82% of the forecast offshore capacity to 2025 has been awarded a support scheme or is in more advanced stages of development, the research said.
This compares with global offshore upstream oil and gas Capex, where the current trend for short-cycle projects lowers the visibility and certainty of investment outlooks beyond 2022, it said.
Wood Mackenzie added that the offshore wind supply chain is also entering a period of transformative growth.
“The number of project interfaces – the supply deals associated with a project – is both broadening and decreasing, while the size of projects and contracts is growing,” the analysts said.
They added that project sizes and clusters of projects will increase by 63% by 2025.
“To win these larger deals, smaller supply chain players are consolidated to create companies capable of capturing the larger work packages,” Wood Mackenzie said.
It added that larger work packages are also attracting the larger O&G players to the offshore wind industry.
Changes in project characteristics – the scale, complexity, water depth and distance from shore – is also changing the way in which Capex is distributed along the value chain and intensifies requirements to equipment and production capabilities, the researchers said.
They added that offshore wind offers lower risk and lower returns and investors ‘follow the money’.
But why would investors target offshore wind with single-digit returns, when most new offshore oil and gas projects are making double-digit returns? asked Wood Mackenzie.
It said: “There’s more work to do to make renewables projects attractive, even economic, to the mainstream of investors.
“But, any investment in the oil and gas sector is now subject to ‘energy transition risk’, which encompasses falling demand for oil, the potential cost of the carbon intensity of assets, and more.
“There’s also a real possibility that both upstream project returns and renewables project returns will evolve, taking into account changing cost of capital, government subsidies and technology development.
“In the context of the energy transition, we expect offshore wind to become an attractive low-risk investment, particularly to carbon-heavy portfolios.”