Reflections on the state of the floating offshore wind industry from a sailboat (Q1 '24)

This week I am out on vacation after one of the most dynamic and interesting quarters of my career. It has been an absolute whirlwind and I am definitely looking forward to taking some time off to recharge. However, I wanted to reflect on the state of our industry and why i am cautiously optimistic about Q2 and beyond.

We are still not yet through our prevailing macroeconomic storm. Our industry continues to be buffeted by high interest rates, high inflation, and constrained supply chains. These trends are exacerbated by a policy environment that remains stubbornly unreliable in providing developers with the means to deliver projects on a predictable schedule (key gaps in Permitting, Ports, Transmission, Offtake, Workforce, etc.). This has locked our sector into a vicious cycle: the prevailing uncertainty is making it unnecessarily difficult for suppliers to authorize investments at a time where tight supply and growing demand should be attracting new capacity. It follows that this new capacity would then reduce prices and lead times, helping us return to a better economic trajectory.

Without stable political conditions, sponsors and suppliers are forced to retrench, prioritizing markets, industries, and projects that promise higher profitability at lower risk. This is a significant change from the expansive “anything is possible” mindset that pervaded a year ago in Q1 ’23 (read: a bubble). However, what is happening now feels like a dangerous over-correction that puts us even further behind in our decarbonization goals.?This is extremely troubling.

As a newer market segment, the floating wind sector is especially exposed, and, despite significant deep water targets announced globally, industrial-scale projects are only making progress in a few markets. The delays in schedule translate directly to delays in engineering spend and, together with a more prudent and risk-conscious mindset, is already starting to drive a wave of consolidation in technologies and suppliers.

Against this backdrop, it was especially interesting to see the range of emotions at WindEurope in Bilbao: from head-in-the-sand optimistic to woefully pessimistic. Having been through a few of these cycles before, I remain cautious about the timing of the recovery but do see some breaks in the clouds:

• ??We are lucky to have visionary global organizations like Global Wind Energy Council (GWEC) , 世界银行 / IFC - International Finance Corporation , and Global Renewables Alliance (GRA) that continue to prepare our future through their tireless work to globalize offshore wind through advocacy, road-mapping, and technical assistance. At Principle Power, we are proud to support this essential work in whatever way we can.
• ??At a market level, it is positive to see many of our trade associations, in particular, WindEurope , RenewableUK and Oceantic Network , are elevating the need to build a healthy supply chain as a top priority. These organizations are forcefully championing the creation of a financially sustainable industry that prioritizes deliverability, quality, safety, and positive impact. This is in stark contrast to the least-cost auction system that has dominated the last decade, where policy makers drove a race to the bottom (in search of great deals for ratepayers) by simply gambling on which developer promises the lowest cost (who often, in turn, bet on their own ability to squeeze suppliers)
• ????We must recognize that while delays and cancellations are painful in the short-term, there is a silver lining: these external pressures have exposed weaknesses and burst the offshore wind bubble while the industry is still at a relatively early stage and manageable size. There is now greater scrutiny in?decision-making and more serious conversations about valuation, price, risk, and policy than we’ve seen to date. I am confident that this return to diligence will ultimately result in a healthier industry.
• ???Floating wind ports – a precondition for the efficient delivery of industrial scale projects – are finally seeing meaningful investments - with the France, the U.K., and the USA leading the way?
• ??Projects are progressing in several markets, preparing for next steps, whether auctions or political clarity on timing of grid connections. A great example is Copenhagen Infrastructure Partners' Haewoori Offshore Wind project in Korea which awarded a FEED to Principle Power and Aker Solutions in January,
• ??Customers are getting increasingly sophisticated and nuanced in how they are planning projects, qualifying floating technologies and suppliers, and defining contracting structures. We see more realism and a renewed emphasis on proven experience, giving confidence that projects will be planned and delivered effectively
• ??Our talented team continues to produce excellent work with some recent examples shared at WindEurope Bilbao including a Tradeoff Assessment of the WindFloat Hull Trim System and a Lifecycle Assessment of the WindFloat technology, which serves as a baseline for our industry's next major challenge: reducing the carbon intensity of our supply chain

Navigating through this period of uncertainty has also made me realize just how privileged we are to have the opportunity to work on such an interesting and multidisciplinary project. Luckily, our cause is attracting some of the most talented and passionate people on the planet, which gives hope to the mission and makes the journey enjoyable despite the difficulties.

If we are successful, we will unlock a nearly limitless source of clean, renewable energy from some of the most demanding ocean environments on earth.

Although delays and political uncertainties continue to cast doubt and test our patience, I still can’t imagine a better or more audacious challenge.

If we don’t do it, then who will? ???????