Offshore wind contracts: Risking Net Zero
Published on 7 September 2023
Governments around the world have placed significant expectations on offshore wind in delivering the new energy mix that will unlock our net zero future. With around 450GW of production planned across the globe, it is no longer a niche industry – this is a sector which is both important today and with a bright future. On paper at least.
We must not forget that ambitions, goals and targets for net zero are just that. They remain largely aspirational without the detangling of the significant skills, supply chain, risk and financing obstacles the sector faces.
In recent weeks, we have seen a number of high-profile projects cancelled, including Vattenfall pulling out of the 1.4GW Norfolk Boreas in the UK. Slim profit margins have been placed in the spotlight following inflationary pressures, and deals secured some years ago to develop offshore farms are simply no longer viable. As Vattenfall CEO Anna Borg highlighted, “Higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made offshore wind and its supply chain particularly vulnerable.”
IMCA Contact
Iain Grainger
CEO
Contact
Since the beginning of 2023, we have been campaigning for a better approach, bringing key stakeholders together to explore how we can overcome the risk challenges in offshore wind contracting. We published a set of 28 contracting principles to guide negotiations towards a more appropriate allocation of risk.
For our Members – who have the skills and knowledge to safely deliver wind projects in extremely challenging offshore conditions – offshore wind contracts often require significant negotiation around risk, with finance and insurers often misunderstanding the nuances of our business and project delivery models.
Our recent panel discussion, held at Global Offshore Wind in London in June, was an opportunity to bring the conversation to the industry. A lively 45-minute discussion brought together Hugo Bovey of DEME Offshore, Richard Huxley of GE Renewable Energy and Richard Haydock of bp to explore the issues in front of an engaged conference audience.
The panel agreed that it was critical to allocate risk to the parties best placed to manage it and argued that it would lead to better overall outcomes. Standardised contracts – such as those developed for offshore oil and gas in the 1990s – could be one way of achieving this. The discussion also highlighted the need for greater collaboration across the supply chain and the key role organisations like IMCA can play in facilitating this.
We have been continuing our campaign behind the scenes and I am pleased to share that we will soon be publishing a standard contract created to overcome some of these risk challenges.
This comes at the right time. The current macro-economic situation has made the need for progress very noticeable. The perfect storm we are seeing of strong demand, constrained supply, and inflationary pressures means that the old way of contracting is not just unsustainable but putting government ambitions for net zero and energy security at risk.
Iain Grainger is CEO of IMCA. This article originally appeared in Windtech International magazine.