A new survey and analysis, conducted by Westwood Global Energy Group, has found that recent cost inflation could add roughly USD 280 billion in capital expenditure (CAPEX) for the offshore wind industry over the next decade.
Nearly three-quarters of respondents indicated that they began to review the viability of their projects in light of recent cost increases, with over 90 per cent indicating that decision-making had slowed as a result.
“Inflation has been one of the key challenges facing the global economy over the past 24 months and offshore wind has been no exception, grappling with both specific and general inflationary factors ,” said Peter Lloyd-Williams , Senior Commercial Wind Analyst at Westwood.
“ OEMs have incurred significant losses, while developers have delayed projects in the face of shrinking margins. However, precise details on the extent of rising prices and their proximate causes have – until now – remained elusive.”
To address this information gap, Westwood’s market study in the first half of 2023 explored three potential themes: the extent of cost inflation, the causes of cost inflation, and its possible consequences.
A plurality of respondents (32 per cent) indicated that they had seen cost inflation of 11-20 per cent since 2021, with a smaller number reporting cost increases north of 30 per cent. In addition, some reported that financing and commodity prices specifically had risen by over 40 per cent, said Westwood.
In response, Westwood’s internal analysis suggests that recent cost inflation could add roughly USD 280 billion in capital expenditure for the offshore wind industry (ex-China) over the next decade.
Financing this expenditure gap could ultimately take the form of higher offtake prices funded directly by consumers or indirectly through additional fiscal and tax incentives, according to Westwood.
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“With margins in many parts of the industry already being squeezed due to attempts to make offshore wind more cost competitive in general, cost inflation may prove extremely challenging for some businesses ,” Lloyd-Williams added.
“ At this stage, however, most of our respondents appeared committed to the offshore wind industry and were not seeking to reduce headcount or withdraw from the industry.”