How can the G7 deliver on its ambitious offshore wind target?

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Under the spotlight

The G7’s offshore wind target could boost efforts to achieve Net Zero but what do governments need to do to help the industry deliver it?

From European countries pledging to quadruple North Sea wind capacity this decade, to a first-of-its-kind power line planned to transfer wind-generated electricity between the UK and the Netherlands, offshore wind has been a regular feature in the news agenda this month. Among these developments, perhaps the standout commitment was made by the G7. On 15 April, climate, energy and environment ministers from G7 countries met in Sapporo, Japan. They discussed how to pursue Net Zero, circular and nature-positive economies, and committed to add 150GW of extra offshore wind capacity by 2030.

Will this target be met? Based on current trajectories it looks unlikely. The G7’s current installed offshore wind capacity is approximately 22 GW. 2030 is just over six years away, and in many mature markets, it takes an average of eight to ten years to progress from identifying a site to an operational wind farm. Based on current pipelines, the Global Wind Energy Council expect 130GW of offshore wind capacity to be added globally by 2027. However, much of this will be driven by China, which is not part of the G7.

Nevertheless, bold targets can be useful. They can help to illustrate the scale of the challenge and incentivise industries to move further and faster. To set the offshore wind industry up for success, G7 governments now need to ensure policy decisions support innovation and speed. The Carbon Trust’s experience of advising policymakers on designing offshore wind markets shows that the following five areas are critical:

1. Market visibility: To support the industry, governments can provide clarity and certainty around their vision for offshore wind. Targets help to define long-term ambition but must be followed by clear and consistent messaging about regulatory developments and plans. However, there is a trade-off between visibility and certainty, not least because short political terms make it difficult to maintain accountability and stability for long-term policy goals. Near-term roadmaps have been an effective compromise in Germany and the Netherlands.

2. Site development: Securing the necessary permits and consent to build is one of the most time-consuming stages of offshore wind development (three to seven years typically) and is still a significant bottleneck. To enable the industry to install offshore wind at the pace required, governments need to make consenting processes as efficient as possible, without compromising due diligence. ‘One-stop-shop’ entities that bundle permits into a single process can streamline the process and mitigate conflicts and confusion between stakeholders.

3. Grid integration: Many government targets, including the G7’s, are focused on capacity (the maximum amount of power a wind farm could produce in ideal conditions). Unless governments improve grid infrastructure and make it easier and quicker for wind farms to connect to the grid, there will be a huge gap between this potential capacity and the amount of electricity they can generate in practice. At one point, grid connection delays in Germany damaged industry confidence to such an extent that national targets had to be scaled back. The country still struggles to use and transport all the renewable energy it produces.

4. Incentive mechanisms: Incentives which reduce risks and costs for developers and investors help to stimulate offshore wind markets. More generous incentives are likely to be needed in emerging markets where offshore wind has not been deployed and project delivery risks may be considered higher. When markets are sufficiently mature, governments can introduce competitive auctions (in which companies offering the cheapest energy win government contracts and associated subsidies). Competitive auctions can deliver substantial cost reductions but must also be designed to carefully prioritise deliverability of projects, and not to invite such low bids that projects become economically unviable. Additionally, competitive auctions should be designed to continue to provide a route to market for emerging technology which may not yet be price-competitive, such as floating wind. Carbon Trust market analysis highlights that the first commercial scale floating wind farms will likely be operational by 2030.

5. Supply chain development: The global energy crisis and Russia’s invasion of Ukraine has made energy self-sufficiency a top priority for many countries. However, although giving preference to local suppliers and workers can support domestic industry, it can also drive up costs and slow down deployment of offshore wind. Governments must identify their priorities and strike a delicate balance. The UK’s Grow Initiative successfully maximised opportunities for domestic companies, without prescriptive local content requirements. Instead, it provided SMEs with funding, market insights, and tailored support to compete with international players in the offshore wind space. Beyond the UK, skills development efforts in Denmark and the Netherlands provide useful learnings for Japanese decision-makers.

The Net Zero Intelligence Unit is working with the Carbon Trust’s offshore wind experts to provide policymakers with a series of critical insights on designing effective offshore wind markets. This work will draw on the Carbon Trust’s wealth of experience advising on international offshore wind policy and will be freely available on the Carbon Trust website from next month.

Quick Intelligence

Policy: EU carbon market reform will cut emissions faster

After almost two years of negotiations, a vast reform of the EU’s carbon market will now be written into law. Under the revised emissions trading scheme (ETS), the price of permits to emit CO2 will increase, and companies will gradually lose access to free permits, increasing the cost of polluting. Shipping companies will also be covered by the extended scheme, which until now has applied only to the power sector, heavy industry and aviation. To prevent EU companies from being undercut by foreign competitors who aren’t exposed to these costs, the bloc will also impose a carbon tax on companies importing products into the EU. Since its inception in 2005, the ETS has cut industrial emissions by 43%, and it is hoped that by 2030 these changes will bring that figure to 62%. The EU’s ETS will continue to serve as a useful model for other countries. In the Carbon Trust’s experience of designing carbon markets, raising awareness of the co-benefits of carbon pricing and communicating with high-emitting industries and stakeholders who may have concerns about the scheme is key to success.

Finance: venture capital Net Zero alliance may have a difficult journey ahead

Twenty-three leading venture capital firms have joined forces to form the Venture Climate Alliance. It aims to help early-stage investors and their portfolio companies to decarbonise. The group will form part of the Glasgow Financial Alliance on Net Zero and has been approved by the UN’s Race to Zero campaign. This means members must comply with the campaign’s requirements for Net Zero disclosure and action. Collective action by the Venture Capital community could help to re-align private finance with Net Zero progress by funding climate solutions and ensuring seed investment is channelled towards the most credible and impactful businesses. However, assessing the future impact of such early-stage ventures is inherently difficult, due to a lack of available data. In its venture support work, the Carbon Trust advises climate tech startups to take a conversative approach when communicating climate benefits to investors. This should take into account any unintended emissions increases (rebound emissions) which could result from the use of their solution.

Business: new research project could make compostable packaging Net Zero-compatible

Some of the UK’s biggest supermarkets are collaborating on a research project into compostable plastics. Packaging experts from Tesco, Marks and Spencer and Ocado joined the advisory board of Compostable Coalition UK, which is investigating the environmental impacts and barriers to recycling compostable packaging. Finding a credible alternative to single-use plastics is crucial to Net Zero; Carbon Trust analysis estimates that global emissions from single-use plastics in 2021 were roughly equivalent to the UK’s annual emissions. Some plastics are suitable for home composting, while others require industrial processing sites with specific temperatures and humidity levels to decompose. Currently, consumers cannot easily distinguish between different types when disposing of them and industrial facilities are not widespread. If the coalition’s research can identify solutions to these problems, it could further progress towards a circular, Net Zero economy.

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This month's edition of the Net Zero Roundup was written by Chloe St George.

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The Net Zero Intelligence Unit produces experience-led insights to accelerate global progress towards Net Zero. If you’re a journalist or event organiser and would like to get in touch with us, please email press@carbontrust.com or events@carbontrust.com.