More than 20 years after the world's first commercial offshore wind farm opened in 1991 in the Baltic Sea off the coast of Vindeby, Denmark, the industry continues to be dominated by Europe.

Global installed offshore wind capacity stood at 4.62 GW at the end of June 2012, of which 90% was in northern Europe, according to the Global Wind Energy Council (GWEC). Furthermore, the North Sea – and a handful of nations led by the UK and Denmark – dominate the industry in Europe. More than half of global on-line offshore wind is in the North Sea.

Despite huge coastal populations around the world, most regions have shown little appetite for investing in the sector. Even the news that EU countries have surpassed 100 GW in total installed wind capacity served as a reminder of how far the offshore industry lags behind land-based wind.

At present, the offshore segment constitutes just 2% of total global wind capacity, which itself provides only 2.5% of global electricity. Yet offshore wind’s long-term potential is enormous.GWEC estimates that offshore wind could meet Europe’s energy demand seven times over and US energy demand four times over. China, the global leader in installed wind capacity with more than 62 GW onshore, has barely begun to exploit its offshore resources, estimated to total a potential 750 GW – three times its onshore potential. By 2020, offshore’s share of global wind capacity will reach 10%, according to GWEC.

Offshore wind farms offer advantages over onshore turbines that could help encourage greater investment. Higher and more consistent wind speeds and taller turbines with larger blades can help achieve capacity factors of up to 50%, compared with about 30% for a typical onshore farm. The proximity of many offshore turbines to heavily populated coastal areas often makes grid connection easier and cheaper than extending new transmission lines over remote areas of land. Strong daytime offshore winds can also offer greater potential for matching supply with peak electricity demand, and offshore farms generally avoid the risk of opposition on aesthetic grounds.

The 25 turbines at the UK’s Burbo Bank Offshore Wind Farm in Liverpool Bay
total 90 MW but a planned extension would add 250 MW (Siemens)

Set against these advantages are several drawbacks that have limited offshore development in many countries: a shortage of shallow waters, insufficient technological know-how and a lack of political backing, to name but three.

Then there is the issue of finance. While costs can vary greatly, the substantial additional investment required for offshore construction, operation and maintenance compared with onshore projects has acted as a severe and sometimes prohibitive brake on developments.

Average cost for offshore projects commissioned in the first quarter of 2012 climbed beyond US$230/MWh compared with about $176/MWh in the same period of 2011, according to Bloomberg New Energy Finance (BNEF). Offshore wind remains nearly twice as expensive to install as onshore wind, according to a June 2012 working paper published by the International Renewable Energy Agency (IRENA).

The North Sea Dominates

Eventually, these costs may fall so that higher electricity output is seen as justifying the extra initial investment. For now, though, the industry remains reliant on the unambiguous government backing and incentives for private business that spurred its early development in Europe.

The North Sea also dominates for its consistently strong winds, long, shallow stretches of water and small, densely populated countries. But political pressure to cut carbon emissions, a history of oil and gas exploration and economic arguments for building up the industry are also key issues. Danish Prime Minister Helle Thorning-Schmidt recently stated: ‘Even though we’re in an economic crisis, this is the time to invest in green jobs.’

Fraser Johnston, a wind analyst at BNEF, said: ‘For the UK and Denmark, offshore wind is critical to meeting their binding 2020 national renewable energy action plan targets. Since the Fukushima disaster Germany has looked to scale up too. There are also secondary benefits such as security of energy supply and job creation.’

The UK, by far the global leader in offshore installed capacity, prioritised the sector for ‘industrial reasons’, according to Anne-Benedicte Genachte, regulatory affairs advisor for offshore wind at the European Wind Energy Association (EWEA). ‘There is a policy of converting the shipbuilding yards in the north,’ she said. ‘They have excellent wind resources, they have the maritime heritage and it was a policy decision to reinvigorate industry and create jobs in coastal areas.’ It is also relatively easy for wind turbines manufactured in Denmark by Siemens and Vestas to be transported to UK waters.

Denmark led the race to design turbines following the 1970s oil crisis and established a market lead in the following decades, benefiting from early Danish offshore tenders to test their turbines. A dedicated supply chain and high level of expertise in offshore construction and operation in northern Europe has helped Sweden, Belgium, Germany and the Netherlands also emerge as early pace-setters.

Rising Opportunities in the East

But some nations outside Europe have recently awoken to the opportunities offshore wind offers, with Asia set to lead the way. Whether it is China’s escalating energy demands and economic ambition, Japan’s search for solutions to replacing nuclear or South Korea’s unrivalled shipbuilding capacity, the signs that offshore wind in the region will soon take off are clear.

China is aiming to reach 5 GW of offshore wind by 2015 and 30 GW by 2020. It was only in 2010 that Shanghai Donghai Wind Power opened China’s first large-scale offshore wind farm, the 102 MW East China Sea Bridge project. A 100 MW expansion costing $300 million is due in 2013. But the country’s second round of bidding for 2 GW of offshore wind projects has been delayed.

Steve Sawyer, secretary general of GWEC, believes China’s 2015 target is at risk but expects the 2020 target to be met. ‘The Chinese government identified wind power as one of their strategic priorities in 2006 and they want to be global leaders because they think it will be a big part of the global energy mix,’ he said.

Sawyer points to the fact that China’s biggest cities are in the south and east, far from its strongest onshore wind resources in the north, as the principal reason for looking offshore. Another driver is the creation of a domestic industry with a track record that will help Chinese companies thrive in the export market. ‘It’s about making sure their technology is as competitive as that of their European counterparts,’ said Johnston, of BNEF. China’s Sinovel is already the world’s second-largest wind turbine maker by production capacity and aims to become number one by 2015. The Beijing-based state-owned company can count on billions of dollars in credit from government-owned banks and eventually wants to make half its sales overseas.