Every year, we use the first edition of A Word About Wind to make ten predictions about what we expect to happen in the year ahead; and, in the final edition of the year, we will look back to see what we got right and wrong. Make sense? Good.
Let’s get cracking with our ten predictions for wind in 2023:
- More pain for European and US turbine makers: Our predictions won’t all be doom and gloom. However, we can’t ignore the pain that western turbine makers faced in 2022 due to inflation and supply chain disruption.
This is set to continue in 2023 as western firms focus on profits over volumes, which will reduce their total installations, and as they face more pressure from Chinese rivals in non-Asian markets. We will see them focusing more on their servicing arms – and servicing deals of 30 years plus will be more prevalent.
- Inflation cools but value chain feels the effects: Inflation in the UK, US and Europe will ease from mid-2023, but developers will feel the pinch. Higher turbine prices and too-low strike prices in tender processes will delay projects in leading European markets, which will increase pressure through the value chain.
However, we believe this will be a wake-up call for governments to respond to calls from the industry for smoother permitting processes and realistic strike prices. The need for energy security, particularly in Europe, will be as important as ever.
- Oil to average $90 a barrel or more through 2023: It’s always dangerous to put an exact number in a prediction, but we expect oil to average at least $90 a barrel in 2023, and would not be surprised by $100 or more.
Sadly, we see little prospect of a quick end of the Ukraine war and accompanying sanctions on Russia; and we think economic activity will be strong in China despite recent Covid lockdown wobbles. These are two big factors that will drive oil demand in 2023 – but we've already seen so far this decade how quickly this can change!
- High power prices spark greater PPA flexibility: High power prices on the open market may have helped operators in 2022, but we anticipate robust demand for renewable power purchase agreements (PPAs) in 2023. Corporates have green targets to meet and developers still require the certainty they offer. We expect demands for more flexibility in PPAs this year, so buyers can negotiate if power prices drop steeply, and more investor acceptance of shorter PPAs.
- UK wind farm debate will roll on and on: We welcome the pledge from UK Prime Minister Rishi Sunak to end a de facto ban on new onshore wind that has been in place in England since 2015, but momentum will pick up slowly.
Potential changes to the planning system that are in consultation until April still appear to give heft blocking rights to local objectors; and we may see a Sunak U-turn as he looks to keep the Conservative Party together before an election in 2024. For now, the direction is good. But the debate isn’t over.
- US states to get real on offshore local content: The Biden administration is looking to get US offshore wind to 30GW installed by 2030, and we see little let-up in leasing activity. We will hear plenty of talk about the recent California tender in early 2023. However, US states will also have to re-think state-level local content plans and form partnerships with their neighbours, to give firms the certainty they need to make vital supply chain investments. Finally, we will see inflation continue to bite – and will see some high-profile projects fall victim.
- Repowering accelerates in Europe and US: Repowering activity is picking up on both sides of the Atlantic. Speakers at our Financing Wind conference in the US in November identified this as a huge opportunity due to the impact of the Inflation Reduction Act; and the European Union also plans to unleash this through its REPowerEU plan. We expect turbine makers to pick up some headline-grabbing orders this year as owners and operators look to boost the financial returns they can generate from their windiest sites.
- Australia, Japan and Norway emerge offshore: There is little shortage of countries that are seeking to make good on their offshore wind potential over the next year, but among the most exciting are Norway, which is due to hold its first offshore tender in 2023; Australia, which is set to do likewise in 2024; and Japan, which is belatedly making good on its potential with new tenders too. It will take time for each country to build a sizeable offshore wind sector, but it is crucial that these countries – and others – build momentum.
- More wind owners add co-located batteries: Wind has historically lagged solar in terms of how it integrates battery storage with generation projects but, in 2023, we expect wind-plus-storage projects to become far more common in markets around the world. This will be mainly driven by new-build projects, but co-locating batteries will become a more attractive option as operators seek to sweat their assets. The market is moving on from standalone wind schemes.
- Power-to-X to accelerate through to COP28: There are plenty of challenges for firms in the power-to-X sector to overcome if the sector is to become mainstream. However, one success at COP27 in Egypt in late 2022 was how it unlocked a slew of major power-to-X projects in the MENA region, and we expect this to continue in the run-up to COP28 in Dubai.
This year, we will see a host of new gigawatt-scale projects announced, including exciting tie-ups with the offshore wind sector, and greater clarity over who will use green fuels. Get in touch to find out what Tamarindo is doing in power-to-X in 2023.
Do you agree? What would you add? We’d love to hear.