Clarksons Renewables Offshore Wind and Project Newsletter

Clarksons Renewables Newsletter

HIGHLIGHTS OF THE WEEK 35

by David Matthews , Head of Strategy, Clarksons Offshore

In this week's Newsletter, we look into the evolving landscape of offshore wind while shedding light on recent challenges that have impacted the real workhorses of the industry, the Construction Support Offshore Vessels (CSOVs). Additionally, we explore the numbers required and the rates they command per day. We also look at noteworthy trends where vessels originally designed for the O&G sector are being redirected back to their home for more favourable terms, extended contract durations, and reduced contractual liabilities, compared to the cumbersome procurement processes seen in the offshore wind sector.

Offshore Wind Project Growth and Challenges

In the first half of 2023, the offshore wind sector has witnessed impressive growth, with developers committing $21.1 billion in capital expenditure (CAPEX), marking a 59% year-on-year increase on an annualized basis. This resurgence follows a period of subdued Final Investment Decision (FID) activity in 2022, primarily influenced by high inflation rates and interest costs. Last year, only $26.6 billion was committed, representing a 36% year-on-year decrease.

Despite this growth, developers and the offshore wind supply chain continue to grapple with substantial margin pressures, particularly in Europe and the US. This strain arises from the backdrop of elevated inflation rates and rising interest costs, making project viability a central theme in the coming years.

Recent Offshore Wind Project Challenges

Over the summer, several offshore wind projects have encountered delays and cancellations. Notable instances include the postponement of Norway's Trollvind (1 GW) project, Denmark's rejection of 24 applications for its open-door scheme, the suspension of the UK's Norfolk Boreas (1.4 GW) project, and ongoing examination of the Norfolk Vanguard projects (2.8 GW). Additionally, the US market has experienced a slew of Power Purchase Agreement (PPA) terminations and renegotiations.

Global Vessel Orders

In the first half of 2023, the offshore wind sector has witnessed a surge in vessel orders, with a total of 66 dedicated wind vessel orders, including Wind Turbine Installation Vessels (WTIVs), CSOVs, and Crew Transfer Vessels (CTVs), valued at $1.9 billion in investment. This marks a 20% increase compared to last year's record of 110 orders, valued at $6.1 billion on an annualized basis. Notably, Chinese owners have driven this growth, accounting for 26 out of 30 WTIV orders last year and four in the current year.

CSOV Sector Resilience and Rates

Within the CSOV sector, order activity has remained robust, with 12 CSOV orders placed globally in 2023, matching last year's record pace. European owners have dominated this sector, accounting for 11 of the orders this year, primarily focusing on large CSOVs accommodating over 90 passengers.

Despite project delays, CSOV rates have continued to strengthen. Clarksons' rate index for the CSOV segment (mid-point) reached as high as €56,000 per day earlier this summer. This upward trend in rates is partly attributed to vessels originally designed for the O&G industry returning to their home market due to increased activity. As long as these subsea vessels constitute a marginal supply, and the supply-demand balance remains tight in the offshore O&G segments, we anticipate strong CSOV rates. Additionally, CSOVs retain the flexibility to engage in light maintenance and construction work in the O&G sector, providing a safety net in the event of further offshore wind project delays and cancellations. Our rate estimate for open vessels remains at €42,000 per day for the 2024-2026 period, with long-term rates projected at €35,000 per day thereafter.?

OFFSHORE RENEWABLES NEWS

?rsted has disclosed anticipated impairments in its US portfolio as part of its ongoing review of near-term offshore development projects. These impairments result from challenges including supply chain disruptions, delays by suppliers in Ocean Wind 1, Sunrise Wind, and Revolution Wind projects, and limited progress in securing Investment Tax Credits (ITC). These factors pose risks such as additional costs, remobilizations, and potential revenue delays, amounting to up to DKK 5 billion. Moreover, discussions with federal stakeholders on additional ITC qualifications for Ocean Wind 1 and Sunrise Wind projects are not progressing as expected, potentially leading to impairments of up to DKK 6 billion. Impairments of approximately DKK 5 billion may occur if US long-dated interest rates remain at their current levels by the end of the third quarter. These impairments will be reflected in ?rsted's interim report for the first nine months of 2023. Despite these challenges, ?rsted remains committed to its portfolio's value creation potential, targeting a Return on Capital Employed (ROCE) of approximately 14% for the 2023-2030 period, adjusted for anticipated impairments. ?rsted continues to advance its US near-term offshore wind projects by securing federal and local permits, addressing supplier delays, and engaging with stakeholders to qualify for at least 40% ITCs on all projects. The company aims to make Final Investment Decisions (FID) for Ocean Wind 1, Sunrise Wind, and Revolution Wind projects by late 2023 or early 2024. Pending FID, ?rsted now anticipates the commissioning of Ocean Wind 1 in 2026. Source: Offshore WIND and ?rsted

Equinor and its partner BP are seeking a massive 54% increase in the average price of power purchase agreements for three of their planned offshore wind farms in the US. This is to offset skyrocketing costs and interest rates. The two oil companies have secured the rights to build and sell power from three wind farms - Empire Wind 1, Empire Wind 2 and Beacon Wind - off the coast of New York. These projects have a combined capacity of 3.3 GW, which can power millions of homes. According to a New York State Energy Research and Development Authority (NYSERDA) document, the strike price for Empire Wind 1 would rise from $118.38 per megawatt hour (MWh) to $159.64/MWh, while for Empire Wind 2 it would rise from $107.50/MWh to $177.84/MWh, if BP and Equinor fulfil their wishes. For Beacon Wind, the base price would rise from $118.00/MWh to $190.82/MWh. These figures were first published by the Norwegian business newspaper Dagens N?ringsliv and later by Reuters. Equinor and BP justified their request with factors such as inflation, disruptions in the global supply chain, rising interest rates and the Russia-Ukraine conflict, all of which have driven up project costs. Source: Clarksons Securities Research ?

Maersk Supply Service will increase its focus on offshore wind and offshore support vessels (OSVs) to improve scale and competitiveness. This strategic realignment will benefit from the advancing markets for offshore vessels and the accelerating energy transition. The company intends to leverage its young fleet and modern approach to offshore wind turbine installation to align with the growth potential of these sectors. While Maersk Supply Service will continue to provide towing, mooring and offshore turbine installation services on a time charter basis, the company will no longer embark on new turnkey projects due to unbalanced risk-return dynamics and limited scalability. The company will honour its commitments and work through its project backlog. Geographically, Maersk Supply Service intends to position its fleet in the Atlantic Basin and the North Sea, which includes the relocation of two vessels from Australia following the conclusion of the contract. This strategic relocation will impact the organisation, potentially affecting around 130 onshore and offshore employees over the next two years, subject to the consultation process in the UK. Source: Maersk Supply Service ?

Brand new cable-laying vessel Calypso has officially been handed over to Van Oord. This week, the vessel arrived in the Netherlands and in September it will be christened in Rotterdam. The final construction phase took place at the Vard Brattvaag shipyard in Norway, where the cable-related equipment was installed. The Calypso?is?Van Oord's second cable-laying vessel in addition to the?Nexus. The vessel is not only fitted with a cable carousel on deck but also with a second, below-deck cable carousel, with a total cable-carrying capacity of 8,000 tonnes. Suitable for efficiently laying two cables simultaneously. The Calypso will mainly be deployed to install inter-array grid and export cables for offshore wind projects, including high-voltage direct current cables. Van Oord’s cable trenchers can also be operated from the vessel. The Calypso has been designed with the latest technologies in order to reduce its carbon footprint during operations and when on port standby. Source: Van Oord

Stillstrom and North Star have joined forces to accelerate vessel electrification and offshore charging in the offshore wind industry. ?The companies have signed a Memorandum of Understanding (MoU) to accelerate the adoption of offshore charging and vessel electrification technologies for service operation vessels (SOVs) in the offshore wind sector. Under the terms of the MoU, Stillstrom will leverage its experience in offshore charging infrastructure to demonstrate how Stillstrom’s charging solutions can benefit the operations of North Star's SOV fleet. These solutions will enable the vessels to recharge their battery systems using wind energy while in the field. Source: North Star / Stillstrom

Boskalis has added the BOKA Ocean to its offshore energy fleet. The current pipe-laying vessel, formerly called Apache II, is being prepared in Rotterdam for conversion into a cable-laying vessel. The BOKA Ocean is a sister vessel to the BOKA Northern Ocean and BOKA Southern Ocean, which Boskalis acquired in the past two years. What is special about the three sister vessels is that they all have a different function than that of a pipe-laying vessel. The BOKA Northern Ocean and the BOKA Southern Ocean have been converted into high-end construction support vessels that carry out a wide range of offshore activities. The BOKA Ocean is being converted into a specialist cable-laying vessel. Source: Boskalis.

MEET CLARKSONS AT RENEWABLES EVENTS

OSW Port & Vessels Summit, New Orleans 21st – 22nd Sept.?| More Information ?

ADIPEC, Abu Dhabi 2nd – 5th Oct. |?More information

ACP's Offshore WINDPOWER, Boston 3rd – 4th Oct. |?More information

Floating Wind, Aberdeen 4th – 5th Oct. |?More information

Global Offshore Wind Summit, Kitakyushu City 11th – 13th Oct. | More information

5th Japan Wind Energy Day Tokyo 17th – 18th Oct. | More information ?

Wind Energy Taiwan, Taipei? 18th – 20th Oct. |?More information

10th Asia Offshore Wind Day, Busan? 24th Oct. |?More Information

Offshore Energy, Amsterdam 28th – 29th Nov. |?More information

RWE Offshore US Gulf, LLC has secured the rights to develop offshore wind capacity in the Lake Charles Lease Area in the Gulf of Mexico off the coast of Louisiana, USA. The lease area offers the potential to generate up to 2 gigawatts of offshore wind energy, which could supply over 350,000 US households with clean electricity. This expands RWE's portfolio for offshore wind development in the US, which now includes approximately 5.9 gigawatts of capacity, including awards in the New York Bight and California marine regions. The company's $5.6 million award in the US Department of the Interior's offshore wind auction in the Gulf of Mexico secured lease area OCS-G 37334, a 44-mile offshore area that has a water depth of 10 to 25 metres and is expected to be ready for operation in the mid-2030s, depending on permitting processes. Source: Offshore WIND

Fugro has secured contracts for Dutch Nederwiek Wind Farm II and III surveys. Awarded by the Netherlands Enterprise Agency (RVO), these contracts support the nation's offshore wind development roadmap, targeting approximately 4 GW of capacity. Encompassing 600 km2, Fugro's surveys will provide vital seabed and subsurface geo-data for preliminary engineering, cable design, and environmental investigations. Starting in February 2024, Fugro's advanced geotechnical vessels will conduct fieldwork, with increased onboard lab capacity for quicker result processing. Comprehensive laboratory testing follows in Fugro's UK and Belgium facilities. Source: Fugro

?rsted, a renewable energy company, has secured a NTD 25 billion sustainability-linked revolving loan facility agreement for its offshore wind projects in Taiwan. The agreement involves a consortium of financial institutions, including nine state-owned banks, which have incorporated sustainability criteria into the loan's terms. This ensures that ?rsted's offshore wind initiatives align with environmental goals. The loan facility, guaranteed by ?rsted A/S, saw strong interest from both local and international banks, with participation from all of Taiwan's state-owned banks. The arrangement is supported by Bank of Taiwan, CTBC Bank Co., Ltd., and BNP Paribas Taipei Branch, serving as Mandated Lead Arrangers and Bookrunners (MLABs). Source: ?rsted ?

Seven companies have applied to develop offshore wind projects in two Baltic Sea areas off Estonia. The application period for the Liivi 1 and Liivi 2 zones closed on August 28. The companies include Liivi Offshore, Aker Offshore Wind Europe, Viru Keemia Group, Sunly Wind, Edel Offshore Wind, and a partnership between Ignitis Renewables and Copenhagen Infrastructure Partners. Utilitas Wind, the seventh developer, updated its application in June. ?An auction for these areas is expected in November or December. The starting price for a wind farm in public waters is EUR 15,000 per square kilometer. Liivi 1, spanning 77 square kilometers, has a starting price of about EUR 1.16 million, while Liivi 2, covering 115 square kilometers, starts at around EUR 1.73 million. The highest bidder(s) will win the auction. Within 90 days of the announcement of winners, the permit process and environmental impact assessment (EIA) will commence. Winners, with an expert group, will prepare an EIA program, studies, and an impact assessment report. The Estonia Consumer Protection and Technical Supervision Agency (TTJA) will decide on building permits after compliance checks. TTJA evaluates applications based on guidelines and may refuse those not meeting requirements after feedback from state authorities. Source: Offshore WIND ?

Uptime has been awarded a contract for the conversion of a renewable offshore vessel in the US. Hornbeck Offshore has awarded Uptime the contract for a comprehensive logistics system for its HOSSOVTM300E, which will be the first Jones Act conversion of an SOV for the US offshore renewable energy market. Uptime’s comprehensive scope of supply consists of the Uptime 30m floating wind ready logistics system for personnel and cargo. Artificial intelligence and autonomous functions in addition to integrated 3D winch capability. An elevator tower that will provide offshore workers with safe, reliable, stepless access to offshore wind and other offshore energy installations. A standalone Uptime by Motus 3D Crane for cargo operations is fully integrated into the logistic system. The HOSSOVTM300E will be available in the spring of 2025, after completing its full conversion. Uptime will work closely with both Vard Marine and Eastern Shipbuilding Group for successful execution. Source: Uptime ?

Seaonics?has received an order to supply the ECMC Gangway & Crane package for U.K based Purus Winds new CSOVs. The order includes delivery of equipment for two vessels, built by VARD for delivery in 2025 and 26. Both vessels will be equipped with the all-electric ECMC Gangway & Crane bundled together in one package. Source: Seaonics

Contacts

OSLO

Frederik Colban-Andersen ?|?Managing Director?

Erik T?nne ?|?Managing Director, Market Analysis

Jens Egenberg ?| Head of Research Renewables

Anders C. Hagen ?| Chartering Walk-2-Work, Subsea

Vegard Volls?ter ?| S&P and Newbuilding T&I/CSOV

Espen Bj?rnson ?| Chartering Subsea & Wind

HAMBURG

David Matthews? | Head of Strategy Renewables

Rouven C. Willner ?| Projects SOV, CSOV

Tim? B?rner ? |?Chartering Walk-2-Work, Gangways

Henning Leverkus ?| Chartering CTV, Tugs & Workboats

Sina Ingber?| Marketing & Projects

COPENHAGEN

Gabriel Andersen ?| Principal Consultant Logistics and EPC ?

LONDON

Neil Buchan ?| Head of APAC Subsea & Wind?

Mikkel Nielsen ?| Principal Consultant Logistics & O&M?

Chris Roberts | Chartering and Renewables Consultant

ABERDEEN

James Braid ?| Divisional Director Logistics, Transport & Installation

Olivier Candeel ?| Chartering & Consultant Transport & Installation

Oliver Thompson ?| Market Analyst, Transport & Installation

Chris Tweedie? | Chartering Subsea and Offshore

HOUSTON

Jonathan Lints | Director Subsea and Renewables

Jack Fitzgerald ?| Chartering Jones Act Specialist?

Tylor Bojé | Chartering?OSV / Jones Act Lead

SHANGHAI

Jack Qiu ?| Projects Newbuilds and China?

SINGAPORE Tilly Manley ? | Chartering APAC Renewables ?