On September 9, 2022, the Inter-American Dialogue hosted a webinar titled “Offshore Wind Energy in LAC – Gauging Speed and Direction.” This online event explored the potential of offshore wind in the region, as well as the regulatory, technical, and financial conditions needed to capitalize on it, and the role of government and the private sector in industry development. Dr. Daniela Stevens, director of the Energy, Climate Change & Extractive Industries Program of the Inter-American Dialogue, offered opening remarks and moderated the event.
Panelists agreed upon several factors that determine the success of offshore wind development. Mark Leybourne, co-leader of the World Bank Group’s Offshore Wind Development Program, highlighted three key factors: offshore wind resources, drivers of demand, and government activity. In terms of resources, LAC has a high potential for offshore wind, with some areas having the best conditions in the world. There are also drivers of demand, such as state dependence on fossil fuels, decarbonization commitments, private sector interest, and large industries in search of reliable renewable sources. Lastly, while some governments have begun to promote offshore development (for example, Brazil and Colombia have created offshore wind roadmaps, and several Caribbean islands have begun preliminary studies for development), many LAC governments have yet to consider it. Moreover, few countries besides Brazil and Colombia check off all key factors. Other panelists explained that another key indicator for industry takeoff is preexisting national experience in offshore oil and gas and onshore wind, as well as experience in renewable energy auctions, as that knowledge can easily be transferred to jumpstart offshore wind production.
According to Leila Garcia da Fonseca, senior research manager for the Power & Renewables practice of Wood Mackenzie, some countries with a high potential for offshore wind like Argentina and Chile have yet to create a robust regulatory framework even for onshore wind and solar. Da Fonseca also claimed that the fact that many onshore wind sources are underdeveloped is an indicator that demand for costlier offshore wind is unlikely to spike in the short term. Ramón Fiestas, chair of the Latin America Committee for the Global Wind Energy Council, agreed with da Fonseca, claiming that price competitiveness will not be a driver of market demand for offshore wind; rather, governments’ and big industry’s interest in decarbonization will likely drive demand. Da Fonseca agreed and mentioned green hydrogen as a likely consumer of offshore wind power.
In this regard, panelists agreed that political will is one of the most important factors in propelling the offshore wind industry. Thiago Barral, president of Empresa de Pesquisa Energética, explained that the development process from initial studies to regulation development to tendering projects takes several years, so countries should begin the process immediately if they hope to develop offshore wind within the next ten years. In terms of the tools that governments can employ to spur development, Barral mentioned crafting of regulatory frameworks as a “no-brainer” and emphasized that the real question was how much governments will subsidize development. Panelists highlighted that kickstarting the market can be difficult as, on the one hand, offshore wind must prove its competitiveness, but on the other, governments likely need to financially support incipient industry. Leybourne explained that when starting a new market, the first project is the most expensive, but costs will come down as the industry grows, risks are reduced, local industry producers develop, capital costs lower, and licensing processes improve. In the past, government subsidies for liquified natural gas, solar, and onshore wind brought down the cost of these technologies and helped them succeed. According to Leybourne, price competitiveness is out of reach for offshore wind without government intervention. For Caribbean countries with small market demand and an inability to bring down costs through economies of scale, this governmental action will be essential.
Panelists mentioned several other tools governments can adopt prematurely to reduce risks and timelines for offshore development. Leybourne mentioned starting targeted, strategic surveys and data gathering, educating stakeholders, and completing spatial planning to determine where projects should be developed. Additionally, appointing a focal agency to coordinate with other ministries, agencies, and stakeholders can expedite permitting timelines. Robust, international industry standards for environmental and social assessment can also enable smaller markets in the Caribbean to later receive funding from international investors like multilateral development banks. Da Fonseca emphasized the need for creating environmental licensing standards early on and reshaping them as the industry develops. Barral recommended using a holistic approach to comparing the cost of offshore wind to other sources, taking into account firm capacity requirements, flexibility issues, and climate resiliency of the current matrix. Fiestas highlighted the need to begin knowledge transfers between onshore wind and oil and gas to the offshore wind industry, as well as to consider carbon border tax adjustments and carbon markets to incentivize development.
Aside from lack of political will or government action, panelists determined that one of the main hurdles to offshore wind development is insufficient and outdated transmission lines. While in some areas, the highest offshore wind potential lies near major load centers, in others, it is far from sources of demand. For example, according to Leybourne, the area with the highest potential in Colombia for offshore wind has very little transmission infrastructure. Thus, putting offshore wind onto the grid for distributed consumption will require additional transmission investments across LAC. Barral noted how complicated and lengthy the process of transmission expansion can be, as it requires strategic coordination between agencies. Thus, he explained, linking offshore wind to a single end user like a green hydrogen project is oftentimes much simpler. Da Fonseca also brought up that these large end users can help finance transmission lines. Outdated grid infrastructure and inadequate transmission will become more problematic as intermittent renewables expand and demand grows, complicating load balancing and the ability of offshore wind to add substantial power to the grid.
In closing comments, Leybourne highlighted that offshore wind is not just “onshore wind in the sea.” It is more akin to large hydroelectric or offshore oil projects in that it requires intense planning and highly technical skills. Offshore wind can be a success in LAC, delivering low cost, local value, economic benefits, and secure, clean energy, but governments must be proactive through early market planning and provide certainty about their requirements to reduce risks and costs for investors.
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