Norwegian Offshore Wind - too little and too slow for the Norwegian supply industry?
Norwegian offshore wind turned another page when the Government announced its offshore wind plan on 9 February 2022. The news relates to “Sørlige Nordsjø II” and “Utsira Nord” both of which were destined for development in 2020 and sheds some light on the further process. Unfortunately, the plan appears to have become a victim of significant political compromise, which raises questions about where this leaves the Norwegian supply industry.
Sørlige Nordsjø II which was originally based on 3000MW is reduced to 1500MW. There will be a second phase related to the last 1500MW, but this is being pushed into the future pending further considerations by The Norwegian Water Resources and Energy Directorate (NVE) and Statnett related to grid connection.
Utsira Nord which has a capacity for 1500MW will be developed. However, as this area is having an average debt of 267 meters, compared to 60 meters on SørligeNordsjø II, it will have to be based entirely on floating installations. Currently, floating installations is not commercially viable which will leave this development heavily dependent on government subsidies.
The political compromise becomes evident in their decision to grid connection. Hybrid cables and the resulting possibility of exporting surplus energy has been abandoned. The output of these developments shall only be designated for Norway. This is of course good news for Norwegian consumers and for energy consuming Norwegian industry, however, it leaves a big question mark related to whether these developments will be commercially viable. The Government did open up for the possibility of financial support, but how much and on what terms is still an open question.
The allocation of areas will be based on auction principles, as suggested in the public hearing process in 2021. The further details of the auction process will be outlined in amendments to the Offshore Energy Act and Offshore Energy Regulations which is expected this spring.
The Energy Regulatory Authority has been tasked with identifying further suitable areas for offshore wind, expected to be concluded within 9-12 months. However, this will be followed by time consuming impact assessment processes which will postpone new developments with a significant number of years.
Meanwhile, the Norwegian supply industry, which was expected to take a leading role in the global development of offshore wind on the back of their extensive experience from the oil and gas sector, will suffer. The idea of offshore wind as a new industrial adventure in Norway was originally coined in 2009. 13 years later we are off to the races. However, the tardiness of the process, the reduced scope and the serious questions about the commercial viability of the projects will make it hard for the Norwegian supply industry to compete with foreign, experienced players with a track record, a larger project base and a healthier cost base.