Scotland’s ports are ready, and so is the supply chain. Firm orders for fixed wind are now vital if we are to capitalise on the potential of floating offshore wind to follow, writes Rob Logue from Gneiss Energy.
(This article first appeared in Energy Voice.)
The 2023 ScotWind leasing round and the INTOG round that followed it were a flagship moment for the offshore wind sector – not just in Scotland, but around the world.
Here, for the first time, we could see significant quantities of floating wind entering the project pipeline alongside fixed bottom, with credible developers and the promise of Scotland taking a world-leading position in a new industrial sector.
In anticipation of the significant projects to come, flagship ports around our coast are investing millions of public and private money, gearing up for a wave of orders – which are yet to come.
Offshore wind sentiment has changed significantly, not just in the UK, but worldwide, where failed auction rounds, political change and projects being handed back have underlined the challenge of rising costs and increased project risk.
The flop of AR5, and recent challenges in Denmark, Germany and now Japan, cast a long shadow – creating empty pages in the 2027/28 project delivery schedules for the offshore wind supply chain, with developers now less likely to commit pre-FID spending than they were even a year ago.
Now – with the crucial AR7 Contract for Difference auction round open – it’s clear that Scotland and the UK needs to win, and win big, if we are to kick start confidence in a supply chain ready to go.
For floating – much of that supply chain is here already – with major Tier 1 operators well used to building large structures in the North Sea. But the sector needs fixed projects first, to support port infrastructure and supply chain capacity and let them gear up for floating schemes to follow.
If the Tier 1s and 2s secure orders, this will flow to the smaller firms in the chain – and the industry will start to deliver on its promise of local jobs.
If not, the Tier 1s will go elsewhere and instead of the once-feared ‘capacity crunch’ – where we don’t have enough port acreage to support the industry, we could face the opposite – with empty facilities fighting for orders.
The other risk that currently adds to the uncertainty is grid connection costs – which can have a wider impact on Scottish projects in particular.
AR7 success vital
This is a gloomy scenario, but at least the penny has dropped in the UK, where Ed Miliband has ditched zonal pricing and launched an AR7 round designed to help the industry secure the contacts required to place orders.
A record 25GW of fixed-bottom offshore wind capacity is eligible to enter the race to land a CfD deal from Pot 3 whilst, bolstered by nearly 9GW of projects without planning consent.
Meanwhile, more than 450MW of floating wind capacity is eligible to enter Pot 4 where a maximum strike price of £271/MWh is available.
In Scotland, we have pledged 11GW of offshore generation towards the UK’s 2030 targets – and with only around half of that currently deployed, common sense dictates that both the consented 2GW West of Orkney and 4.1 GW Berwick Bank megaprojects will be vital to address the shortfall.
Cost of capital impact on AR7
The cost of capital makes up a highly significant element of renewable project cost, with long-term borrowing costs a significant influence on project economics, particularly the cost of debt and levered returns.
Economic indicators have become slightly less bearish in last few weeks but are still showing elevated long-term borrowing costs with base rate reducing from five percent at the start of September 2024 to four percent at the start of September 2025, but at the same time the 30-year UK gilt rate has increased from 4.56 percent to 5.64 percent.
Underlying financing costs are a significant element of bid costs but cannot be manged away by developers and this will have an impact on the bid pricing; developers could model a rate reduction in any CfD submission but that would be very risky.
So, to look on the upside, in the run up to 2030, UK energy secretary Ed Miliband needs Scottish offshore wind deployment just as much as the industry needs him, yet current macro influences could have a negative impact on AR7 with the government hoping for downward price pressure during the bidding process.
Floating risk
Fixed bottom success, however, is just the start.
With regard to floating, investors are still wary of a technology that hasn’t truly proven itself commercially at scale in the kind of conditions any project will face in Scotland.
All eyes are currently on the well-advanced 560 MW Green Volt floating scheme (now without an oil platform off-taker for some of its output), and its success will be crucial.
Yet whilst some in the offshore supply chain argue that floaters aren’t that different to the infrastructure they have been deploying in the North Sea for decades, the cost of capital and lack of current investment in emerging floating technologies would suggest otherwise.
And with a number of different competing floating foundation types on the market (and then a number of different technologies/approaches within these each of these sub types), it is difficult for investors to fully understand the technology and market adoption risks.
A core challenge is the well described first of a kind (FOAK) challenge, where the depth and scale of the investment ‘valley of death’ makes it hard for any technology developer to finance and prove out earlier stage technologies to the point of being able to secure pilot projects.
One way to address this would be to establish a floating foundation test and demonstration centre – under the wing of say the Offshore Renewable Energy Catapult, or EMEC – where a number of technologies could be tested and derisked at scale.
This would bring down the cost of capital and make floating wind a more affordable and compelling proposition for the decades ahead.
Floating wind remains an amazing opportunity for Scotland – but we need to derisk the technology.
And if we are to capitalise on the jobs it can bring, above all we need fixed wind to succeed, and fast.
