An uptick in offshore wind M&A is taking place as energy companies look to reposition themselves and prepare for a renewables future. According to Inframation, a total of 36 deals worth US$7.7 billion took place in the offshore wind sector in 2020, compared to 25 deals worth US$5.2 billion in 2019. Dealmaking momentum has continued into 2021, with a total of 12 deals announced in the first quarter—up from seven deals in Q1 2020.
Europe continues to generate the majority of dealmaking activity in the sector, attracting 11 of the 12 deals announced during the first quarter. This growth in investment is taking place against a backdrop of ambitious government targets: The UK is aiming to increase its offshore wind production to 40 gigawatts (GW) by 2030, while the EU is aiming for 60 GW.
UK leads the way
The UK is currently leading in offshore wind development, with almost 11 GW of installed capacity—more than any other country in the world. The Offshore Wind Sector Deal, established in 2019, highlights the government’s push for greater innovation and investment in the sector.
A significant deal of the quarter was E.ON’s sale of a 20% stake in UK offshore wind farm Rampion to RWE. The deal gives the German energy group a majority stake (50.1%) in the 400 MW wind farm. The remaining stake is currently owned by a Macquarie-led consortium (25%) and Canadian energy firm Enbridge (24.9%).
In another bet of confidence from a German buyer, renewable energy firm Baywa.re acquired a 50 MW High Constellation wind farm project in Scotland from Blue Energy. The UK renewables developer is said to be exploring collaborations on other large-scale wind farms in Scotland.
Dutch deals fuel EU pipeline
The EU is also focusing on offshore wind as a key element in cutting greenhouse gas emissions in half by 2050. To achieve this goal, the EU aims to incentivize its member states to increase offshore wind capacity from 20 GW to 450 GW by 2050.
The Netherlands is currently the forerunner in the move to a green hydrogen economy, having pledged to end natural gas production in the north of the country by 2025. In its place, the country aims to create a green hydrogen hub, fueled by offshore wind farms while using the existing gas network infrastructure.
Global energy players are already showing interest in the country’s potential. In March, Shell announced its intention to acquire the 50% stake it does not own in the 108 MW Egmond aan Zee offshore wind farm from Swedish multinational Vattenfall. Following the deal, Shell will become the sole owner of the wind farm—said to be the first offshore facility in the Netherlands—with 36 wind turbines in operation.
Offshore wind fuels Polish recovery
While the country does not currently have any wind farms in operation, Poland’s first Offshore Wind Act looks set to boost investment in its offshore wind sector. Under its first phase, effective February 2021, the government will allocate incentives for 5.9 GW of new offshore wind projects. The Act is expected to play a major role in Poland’s recovery from the COVID-19 crisis, with the potential to generate US$35.2 billion in investment.
Partnerships have already begun to be struck in the Polish offshore wind sector. In February, Danish multinational Orsted and Polish state-owned public power company PGE Polska Grupa Energetyczna agreed to set up a joint venture overseeing work on two offshore wind projects in the Baltic Sea. The two projects are said to have a combined capacity of 2.5 GW.
In the same month, Canadian clean energy firm Northland power announced its intention to partner with Polish oil and gas firm PKN Orlen, acquiring a 49% stake in the 1.2 GW Baltic Power Offshore wind project in the Baltic Sea. “We are excited to partner with PKN ORLEN to expand our presence in Europe through the development of the Baltic Power offshore wind project, but more importantly, further contribute to the global decarbonization transition by helping Poland fulfil its renewable energy ambitions,” Northland power’s CEO Mike Crawley said following the announcement.
Outlook
Energy players appear confident regarding the potential of offshore wind to solve the climate challenge. In June, the Ocean Renewable Energy Action Coalition (Oreac)—led by offshore majors Orsted and Equinor—announced its intention to install 1,400 GW of offshore wind globally by 2050. This stands well above the current forecasts and would be enough to power a tenth of global electricity demand, while saving over 3 billion metric tons of CO2 annually.
The relatively low cost of offshore wind is acting as an incentive for investment in the sector, with the cost of electricity from offshore wind falling by more than 66% since 2012—making it a cheaper alternative to fossil-fuel power plants. This trend, combined with various government incentives to boost investment in the sector, will ensure that offshore wind dealmaking continues to accelerate over the course of 2021.