Winds of change: can big oil make the transition to offshore wind?

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Offshore wind turbine farm
Advancements in floating wind technology are opening new frontiers and making offshore wind a viable option for emerging markets. Photo: Teun van den Dries

When Henrik Poulsen became CEO of Denmark’s state-owned coal and oil utility, Dong Energy, the company was at a crossroads. With dwindling North Sea oil supplies and a growing consensus about the need to transform global energy systems, company shareholders were forced to contemplate Dong’s competitiveness.  

That’s when Poulsen announced an opportunistic change in course: Dong would transform its business model from black to green energy by shedding its fossil fuel assets and transitioning to offshore wind. 

Now, seven years later, the company Poulsen manages -- renamed Ørsted after the Danish discoverer of electromagnetism – is the world’s biggest offshore wind developer, with a third of the market outside of China. Ørsted’s wind farms currently deliver power to 9.5 million people, with ambitions to climb to 30 million by 2025.  The company’s share price alone has doubled in the past two years

As fossil fuel companies consider ways to reduce their greenhouse gas emissions amid increasing shareholder scrutiny about climate change, Ørsted’s transformation offers a tantalizing alternative. Can other oil and gas companies with renewable ambitions lead a global transition from fossil fuels to green energy? 

As head of the International Finance Corporation’s (IFC) Climate Business, I believe that they can, and that part of the answer lies in offshore wind. 

With decades of experience building offshore oil platforms, oil and gas majors are uniquely positioned to manage the logistical, technical, and recruitment challenges of creating offshore wind farms.  

Much of the technical skill needed to build offshore wind platforms is identical to that in offshore oil and gas, an industry that has constructed platforms in the North Sea and elsewhere for decades. This expertise extends to floating wind technologies, which many experts predict are the energy growth engine of the future. 

Floating platforms, largely adapted from the oil and gas industry, are tethered to the sea floor while giving the top-heavy wind turbine enough stability to operate effectively. Most can be assembled on land and then towed out to sea. 

In 2017, Norway’s biggest petroleum company, Statoil – which last year renamed itself ‘Equinor’ – began constructing the world’s first floating offshore wind farm near Peterhead in Aberdeenshire, Scotland using gigantic 250-meter-high Hywind turbines . 

The Equinor staff who built the wind farm situated 25 km off the Scottish coast were once the same men and women who assembled Statoil’s oil and gas platforms. New suppliers – some with oil and gas experience, others with marine operations – were brought in for additional expertise. Once completed, the giant wind turbines set sail on heavy lifting tug-powered vessels that Equinor use to bring oil and gas platform parts out to sea. 

As companies like Ørsted and Equinor lead the green energy revolution, other oil and gas majors look to establish their offshore wind footprints.  

In September 2019, the French oil and gas company Total announced that the group is poised to enter the UK offshore wind sector

Encouraged by the success of its Scottish floating wind farm, Equinor is planning development for its first offshore wind lease in the U.S., an 80,000-acre area off the coast of New York.  

In March 2019, Royal Dutch Shell submitted a bid to build two wind farms in the Dutch North Sea. This followed an announcement by the European oil major that it is planning to cut the carbon footprint of its operations and product sales, pledging to invest $2 billion annually in clean energy, mostly offshore wind. 

Until now, the global offshore wind market has been largely located in the North Sea where there are shallow waters, access to strong, consistent winds and a high-power demand from nearby countries with sophisticated electrical grids. 

Although gusty offshore winds are bountiful in emerging markets, some of the best areas are in water depths that make the fixed foundations of the North Sea impossible. Furthermore, some of these areas are subject to cyclones, typhoons and seismic events not seen in Europe. 

But advancements in floating wind technology are opening new frontiers and making offshore wind a viable option for emerging markets with deeper water and unpredictable weather cycles. A new World Bank Group report estimates that the technical potential for offshore wind in eight emerging markets – Brazil, India, Morocco, the Philippines, South Africa, Sri Lanka, Turkey and Vietnam – is 3.1 terawatts, about three times the installed electricity generating capacity of all EU countries. 

To help tap into these opportunities, in March, IFC and the World Bank’s Energy Sector Management Assistance Program (ESMAP) announced an initiative to assist emerging market governments assess their offshore wind potential and develop a pipeline of bankable projects. The $5m programme is being initiated thanks to a £20m ($26m) grant to ESMAP from the UK government to help low- and middle-income countries pursue environmentally sustainable energy solutions

Ørsted’s visionary focus has allowed the Danish company to be one step ahead of its rivals. Although Poulsen built Ørsted’s offshore wind fortunes in northern Europe, the company recently announced more global ambitions for new markets in North America and Asia.    

Ørsted’s transformation to a leading global renewable energy company was prompted by tough choices but the company’s bottom line – and the climate -- have benefitted. Poulsen’s bet on offshore wind has paid off, with Ørsted a global prototype for a new form of energy company. 

As we move toward a lower-carbon economy, and the future brightens for green power, other oil and gas majors will be taking a closer look at these winds of change.

Authors

Alzbeta Klein

Director and Global Head, Climate Business, International Finance Corporation (IFC)

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