The Line Where the Sky Meets the Sea is Calling for Offshore Wind

Two forms of renewable energy get much of today’s energy headlines—solar photovoltaic and onshore wind. Yet, there is a new and fast-growing renewable energy source being added to the much-needed clean energy mix: offshore wind.

Offshore wind refers to wind turbines that harness wind energy to produce electricity and are typically installed 40 meters to 80 kilometers from the coast where wind is stronger and more consistent. With most of the major Asian cities located in coastal areas, offshore wind feels like a natural and clean energy option for the region.

In 2018, offshore wind accounted for only 0.4 percent of global electricity generation, according to Bloomberg New Energy Finance (BNEF). However, the global total installed capacity of offshore wind increased more than tenfold from 1.8 GW in 2010 to 22.5 GW in 2018, dominated by the mature European offshore wind market. This capacity is enough to power several million households per year.

Asia is starting to follow the successful European experience. In 2018 alone, Asia accounted for 40 percent (1.9 GW) of new installed capacity, primarily driven by China. BNEF expects Asia to account for half of global addition by the 2020s. Besides China, India is planning to launch a 1 GW offshore wind auction in 2019 and Viet Nam is developing an ambitious 3.4 GW project in Binh Thuan Province. Japan, South Korea and other Asian countries are also contributing to market uptake and setting ambitious targets.

This market growth in both Europe and Asia is helping drive economies of scale. It further propels rapid cost reduction driven by both innovation and nontechnological improvements such as (1) increasing turbine size [the largest offshore wind turbines are now almost the size of the Eiffel Tower!], (2) maturing supply chain and (3) growing developer experience. This growth is also providing an alternative business opportunity for the offshore oil and gas sector.

Despite the promising outlook, offshore wind development is not without challenges. The complexity and capital-intensive nature of offshore wind development requires investors to assess the existing government policy and regulations, environmental and social aspects, business model, supply chain readiness, availability of suitable transmission and port infrastructure, among many others.

Cooperation between Asian countries will be essential to enable a further decline in equipment, installation, operation and maintenance costs. Offshore wind is still costly compared to onshore wind and perceived as a high-risk development in the Asian context. The Asian Infrastructure Investment Bank (AIIB) can play a catalytic role in mobilizing private capital and providing the necessary large investment needed to rapidly scale up offshore wind in Asia.

There is no doubt that the line where the sky meets the sea is calling for offshore wind in Asia, which was why AIIB today organized a session on offshore wind for Asia at the Bank’s 2019 Annual Meeting in Luxembourg. The expert panel shared and discussed (1) Europe’s vast experience in developing offshore wind projects, (2) key drivers to successfully unlock offshore wind opportunities in Asia and (3) the potential role of AIIB in mobilizing investment.