KUALA LUMPUR (Aug 12): Offshore wind is a proven technology on course to play a key role in the decarbonisation of the global economy and over the next decade, the industry will attract almost US$1 trillion in new investment, said energy research and consultancy Wood Mackenzie (WoodMac).

In an commentary on Thursday (Aug 11), WoodMac principal analyst for corporate research Akif Chaudhry said a growing number of competitors are flocking to take advantage of the massive opportunities that will be created by the boom.

He said that right now, their share of the market is small, but ambition is ramping up as they bet bigger with their investments in the zero-carbon value chain.

“And there is all to play for as the offshore wind industry scales rapidly and globally.

“Even the lowest offshore wind portfolio average operating cash margin is above the upstream average,” he said.  

Chaudhry said offshore wind’s strong operating cash margin performance shows that the financial prize is more than simply long-term and steady cash flows.

He said such a cash wedge within a business is a good way to support other portfolio areas or, indeed, a significant dividend commitment, and to hedge exposure to carbon and hydrocarbon prices.

“Returns do, of course, matter.

“Falling internal rate of return (IRRs) from offshore wind projects will not be sustainable if the sector is to attract the capital required for it to play its part in meeting global climate goals. Mid-single digit returns will not be acceptable,” he said.

Chaudhry said offshore wind is not without challenges: dark clouds of supply-led cost inflation and rising cost of debt are looming large.

He said the industry is currently grappling with oversupply, while the demands of next generation technology mean that massive investment will be needed to back new tower production facilities.

“But after years of managing volatility in oil and gas, the Majors are equipped to get the balance between risk and return right.

“And they are flush with deep pockets of cash to take advantage of the huge upcoming opportunities,” he said.