Offshore wind energy in the EU - what you need to know

Offshore wind energy plays a crucial role in the transition from fossil fuels to renewable energy sources. The European Commission (Commission) recognises the need for massive increase in wind capacity to 111 GW by 2030.

In this blog, we outline the key upcoming developments in the EU for the offshore wind industry providing project developers, strategic investors and financial sponsors with an overview of legislative trends and market developments. Recent EU initiatives seek to minimise risks and overcome major challenges for stakeholders, such as lengthy permitting processes, unsuitable tender designs or lack of access to resources and skilled labour as well as price and inflation risks and insecure demand. 

European offshore wind strategy 

The EU’s strategy for offshore wind energy is mainly driven by the Commission’s Green Deal Industrial Plan, the European Wind Power Action Plan and the EU Action Plan for Grids.

The Green Deal Industrial Plan provides the framework for an overall industrial strategy, focusing on simplified regulation, faster access to finance, resilient supply chains and a skilled workforce. The plan is implemented, inter alia, through the Net-Zero Industry Act, which includes measures to attract investment and improve market access and conditions for strategic net-zero technologies such as offshore wind or hydrogen.

The European Wind Power Action Plan is based on the Commission’s recent evaluation of the European Offshore Strategy in the wake of the energy crisis. The Action Plan includes measures to speed up the permitting process, improve tender designs and facilitate access to finance. 

The EU Action Plan for Grids flanks the European Wind Power Action Plan, which aims to reduce bottlenecks hampering grid reinforcement and expansion, and to accelerate cross-border infrastructure projects included in the list of Projects of Common Interest under the revised TEN-E Regulation.

Auction design and planning

The European Commission is developing standards for a common auction design as an implementing measure for the Net Zero Industry Act. Auctions remain the means to allocate scarce offshore areas in line with the market. However, some national auction designs have ignored the importance of profitability, stability of supply chains and timely completion of projects while other designs have proven to work. The new uniform auction design aims to prevent cut-throat competition between bidders at the expense of the resilience of the electricity market. Member States, supported by guidance and recommendations from the Commission, will strengthen non-price criteria, such as the quality and life-time of installations, innovation or the development of a supply chain mostly located within the EU (the so-called resilience factor). 

To improve the visibility of project pipelines and the transparency of long-term auction planning that Member States are required to make under the revised Renewable Energy Directive, the Commission will set up an interactive digital platform where the planning will be published.

Faster permitting process

The provisions on the permitting process have been improved through comprehensive amendments to the Renewable Energy Directive, including the introduction of acceleration areas, shorter deadlines, and the establishment of paramount public interest in renewable energy production and grid expansion. As part of the so-called “Accele-RES” initiative set out in the European Wind Power Action Plan, the Commission is helping Member States to implement the amendments quickly by issuing guidance on repowering, environmental impact assessments and the designation of acceleration areas.

Access to finance

The offshore wind industry faces challenges related to supply chain distortions and skills shortages, while inflation, raw material price increases, and rising interest rates increase the costs of projects. At the same time, offshore wind industry continues to innovate. The production of green hydrogen through electrolysis at sea, floating offshore wind farms, the installation of energy islands, multi-rotor WTGs, repowering, recycling and new O&M technologies all show the potential for such innovation and new business models.

To facilitate access to finance and support innovation, the Commission has doubled the budget for financing clean technologies under the European Innovation Fund and adopted a new Temporary Crisis and Transition Framework to accelerate investment in net-zero sectors. 

In addition, project developers will be given priority for the EUR 90 million Innovation Fund that the Commission will make available for project development over the next three years in cooperation with the European Investment Bank.

The Commission and the European Investment Bank are also working on a dedicated instrument to counter-guarantee commercial banks’ credit exposures to key suppliers to the wind industry, thereby improving access to advance payment and performance guarantee lines.

New electricity market design

To overcome high prices in the short-term electricity market, the forthcoming reform of the electricity market design will promote long-term power purchase agreements (PPAs) and bi-directional contracts for difference (CfDs) to decouple returns from the production costs of fossil-fuel-fired electricity, which determine the price in the intraday market. Read our blog on the European Electricity Market Reform if you are interested to learn more. 

Joint ventures / M&A activity

Given the overall evolution of costs and risks, a large number of strategic partnerships and joint ventures have been and are being entered into in the offshore wind sector, whether as brownfield joint ventures in mature markets (e.g. UK, Germany or France) or as greenfield investments in emerging markets such as the Baltic. Given the crucial role of offshore wind in the energy transition, players in the offshore wind industry (and across the value chain) will continue to engage in M&A transactions to expand their portfolios and gain access to new projects, potentially leading to a significant consolidation of the market. In most EU countries, foreign investment in an operational wind farm project falls under the scope of foreign investment rules, which will lead to scrutiny by national authorities.

The outlook

The European legislator has recognized the major challenges the wind energy industry is facing and the need for action. In order to promote the competitiveness of the offshore industry, stimulate private investment and increase the resilience of the European electricity market, many far-reaching improvements to the existing regulatory and financing system have been introduced and more are on the way. While inflation risks and delays due to supply chain disruptions still need to be covered privately, stakeholders in the wind power look forward to an upswing with public support.

Our team would be more than happy to assist you with your offshore wind business and to discuss any challenges and aspects with you. Please feel free to reach out to any of the key contacts to the right if you have any questions.