Turbulent times in the offshore wind sector could change the way large-scale energy projects are built and funded in the future, according to the latest EY Renewable Energy Country Attractiveness Index (RECAI). Offshore wind is crucial to achieving net zero, but has experienced a difficult 12 months, challenged by a squeezed supply chain and escalating costs. Global project costs have risen by 39% since 2019 and the next decade could see cost inflation adding around US$280b in capital expenditure for the sector.

Against this backdrop, around 80% of the 15 markets with offshore wind targets for 2030 are predicted to miss their stated goals. Not least, the UK has conceded its lead position as the most attractive country to host offshore wind projects, falling three places to 7th position on the Index overall. In September 2023, the maximum strike price of £44 (US$54) per megawatt hour for offshore wind in the UK's fifth allocation round (AR5) was not sufficient to entice developers to bid. This represents a huge setback in the UK's goal of reaching 50GW of offshore capacity by 2030.

Arnaud de Giovanni, EY Global Renewables Leader, says:

"The offshore wind sector has reached an inflection point at a time when the climate emergency is demanding urgent investment to meet global net zero targets. For offshore wind to fulfill its role in global decarbonization, it is necessary to mitigate risks that are beyond the control of developers, guaranteeing them a reasonable return on their investments. Tensions in the offshore supply chain could be alleviated by standardizing technologies, offering greater certainty to manufacturers and developers. And governments need to devise strategies that simplify and expedite the consenting process, minimizing risks between the issue of offtake agreements and final investment decisions."

Ben Warren, EY Renewables Corporate Finance and RECAI Chief Editor, says:

"The UK's recent challenges in the offshore wind sector echo a broader, global struggle. When auctioning contracts for offshore wind generation, governments need to reflect economic conditions in the design of the auction. Considering moving away from cost-only auction formats and incorporating factors other than cost, such as environmental considerations and job creation, would boost the supply chain, improve deliverability and benefit wider society."

Nordic countries climb the Index; Japan and Chile fall in the rankings

The top three RECAI markets remain unchanged. The US retains 1st position, fuelled by significant solar growth as a result of incentives from the Inflation Reduction Act. Germany remains in 2nd position, having experienced substantial growth in its onshore wind sector; new capacities installed by the end of September surpass the total installed in 2022. And despite halting national-level subsidies, China continues its upward trajectory in offshore wind, maintaining its overall 3rd position.

The Nordic countries continue to pursue their renewable energy ambitions, with Denmark, Sweden, and Norway climbing two, three, and five places respectively.

Japan slips three places to 13th position. Despite abundant natural resources and a commitment to reduce fossil fuels, it is falling behind other leading economies in terms of solar and wind deployment. Similarly, Chile drops two spots to 16th position. Notwithstanding new battery storage targets, Chile continues to struggle with intermittency issues due to solar curtailment across the country.

To view the RECAI Top 40 in full, the normalized RECAI ranking and the corporate power purchase agreement index, as well as analysis of the latest renewable energy developments across the world, visit ey.com/recai.