British investment needed in Asia’s offshore wind supply chain

The UK has long been a pioneer in large-scale commercial offshore wind and governments in Asia’s emerging markets value this experience. According to industry body Global Wind Energy Council (GWEC), there are numerous opportunities for UK companies to help build this supply chain as the offshore wind industry grows in importance in the Asia-Pacific region.

The Asia-Pacific region is expected to account for 59% of the total offshore wind capacity expected to be added globally between 2024 and 2030. This will increase the total number of installed offshore wind turbines from 41 GW to 172 GW by 2030. This would enable Asia’s offshore wind industry to compete with Europe’s by the early 2030s, underscoring the scale of this opportunity.

However, to realise the region’s growth potential, developing local supply chains is crucial. Newer markets in Asia Pacific can learn some important lessons from the UK. Offshore wind supply chain development in the region remains highly uneven. Only China has sufficient capacity to handle the expected growth, and bottlenecks are likely to emerge elsewhere.

This opens up opportunities for European players, especially those from the UK and Denmark, where the offshore wind industry is booming, according to GWEC. In fact, export credit agencies from both countries are already starting to pave paths for offshore wind players in the frontier markets of the Asia-Pacific region.

Petra Manuel, senior analyst at consultancy Rystad Energy, told Energy Voice that there are some offshore wind subsectors in which the UK has quite a bit of experience due to its long history in the oil and gas sector.

“These subsectors include array/dynamic cable manufacturing and installation, supply vessels, mooring line manufacturing, anchor handling, offshore substation manufacturing and engineering, procurement, construction and installation (EPCI) execution – which have quite a large overlap with floating wind and somewhat limited overlap with the ground-based wind market. Notable companies in these subsectors include Petrofac, Wood and Subsea7,” Manuel said.

“We see that UK companies have better opportunities to gain market share in the global floating wind market, albeit with greater uncertainty as very few floating projects have been approved to date,” he added.

In the Asia-Pacific region, Rystad predicts that South Korea will be the hotspot for floating wind power, followed by Japan.

European actors needed for diversification of supply chains

Liming Qiao, Asia head of the Global Wind Energy Council (GWEC), told Energy Voice that diversifying the supply chain in the Asia-Pacific region is crucial to making the emerging offshore wind sector more competitive. “European developers and supply chain companies can leverage their expertise in renewables and energy transition to capitalize on the opportunities in Asia,” Qiao said.

“Given the huge demand for clean energy, there is a huge opportunity for the rest of Asia to get involved and play a bigger role in the supply and manufacturing chains currently dominated by China and, to a lesser extent, India,” Qiao said.

Governments across the region – from Vietnam and the Philippines to Taiwan, Korea, Japan and Australia – are keen to build offshore wind industries and attract foreign direct investment from the UK, particularly given the country’s experience in developing a world-class industry. Investment in offshore marine services and supply vessels, heavy transport equipment and the supply of key equipment and components (areas where the UK excels) is urgently needed.

In addition, Asia is likely to need experienced UK contractors and consultants who can enable the local supply chain to develop its own capabilities more quickly through technology transfer.

So far, partnerships with European players have been successful in Taiwan, and similar successes are likely to be achieved in South Korea and Japan, GWEC noted. Other markets in the region, where offshore wind is still in its early stages, still face the challenge of establishing a local supply chain while building the necessary skills and workforce.

There are various investment opportunities. For example, a UK company could open a manufacturing facility in Vietnam or Korea and integrate this business development with emerging offshore wind projects in those countries and the wider region.

Rystad’s Manuel said that while “there has not been any major investment by UK companies in the Asia Pacific offshore wind market to date, some UK companies have started to enter the Asia Pacific market through partnerships, such as Technip’s partnership with South Korean companies Young Chang and Sarens for the South Korean market in general, Subsea7/Technip/Samkang in the FEED project for South Korean company Gray Whale and Seaway 7’s joint EPCI contract with Sumitomo Electric in the Japanese market.”

Industry analysts believe that diversifying supply chains will help reduce the risks associated with the global wind industry being largely dependent on one country – China – for production, both in Europe and Asia.

While the concentration risk in China’s wind industry is not as high as in photovoltaics, the concentration of component manufacturing is a major concern given that there is a historical tendency in Europe – and to an even greater extent in the US – to outsource the manufacturing of gearboxes, converters and generators, GWEC warned.

According to Qiao, stable scaling of wind energy requires efforts to attract more local suppliers for these components. Europe needs to at least double its existing capacity by 2030, while the US needs to build local industries from scratch to meet domestic demand.

Without investment in the supply chain, the energy transition is at risk

In its recent report, Mission Critical: Building the Global Wind Energy Supply Chain for a 1.5°C World, GWEC warned that the future prospects for wind supply chains are uncertain and likely to become even more difficult without further investment. Indeed, without diversification of supply chains, energy transition efforts are at risk.

GWEC believes that fair and transparent trade is essential to achieving the goals of the global energy transition and reaping its economic benefits. Unnecessary trade conflicts in the global wind supply chain could pose a risk to climate, energy security and the goals of a just energy transition, Qiao added.

“Maintaining global supply chains requires healthy relationships between trading partners and cooperation within the global trading system,” Qiao said.

In its latest supply chain analysis report, GWEC found that global scenarios of increased protectionism, restrictive trade regulations and distorted competition are likely to lead to slower wind energy market growth, higher wind energy costs and lower financial sustainability of wind energy suppliers.

Nevertheless, “the joint actions now taken to diversify production and supply chains will help create a highly resilient and even more cost-effective solution to decarbonize the world,” Qiao noted.

Attracting investors from the UK

GWEC hopes that UK offshore wind stakeholders will send delegations to the Asia Pacific Wind Energy Summit in South Korea from 26-28 November 2024, where potential investors can learn first-hand about the opportunities in the region’s emerging markets.

In particular, GWEC will publish two different supply chain reports in the fourth quarter of this year, which will provide important information and solutions to both investors and governments.

One report analyses the broader regional APAC market and will be released at the Summit, while the other report examines the supply chain in the Philippine market, which is poised for accelerated growth. The Philippines is expected to host its first offshore wind auction in 2025.

China is ahead of Britain in the development of offshore wind energy

Significantly, China led the world in annual offshore wind development for the sixth year in a row, with 6.3 GW coming online in 2023. This represents 58% of global additions and brings the total number of offshore wind turbines to 38 GW – 11% more than Europe – reported GWEC in its Global Wind Report 2024. The UK remains the largest offshore wind market in Europe and the second largest in the world, with 12.3 GW under construction and more than 100 GW in various stages of development as of May 2024.

While China and the UK dominate global offshore wind energy, emerging markets in the Asia-Pacific region – such as Australia, Japan, South Korea, Vietnam, the Philippines and India – all offer new opportunities for UK developers and suppliers to expand their business.

Crucially, there are numerous opportunities for UK actors to work with the private and public sectors in the Asia-Pacific region, where installed offshore wind capacity in the region is expected to increase significantly as energy security and carbon neutrality objectives become increasingly important.