How Offshore Wind Farms can become Attractive Again
Offshore wind energy is the Netherlands' key source of large-scale, sustainable electricity and, therefore, the backbone of the energy transition. Historically, wind energy has proven to be a success story. In 2013, the Dutch government, together with all involved parties, undertook to build offshore wind farms with a total capacity of approximately 4.5 gigawatts (GW) by 2023 with the ‘Energy Agreement for Sustainable Growth’. This plan has now been completed and the targets have even been surpassed. Together, Dutch turbines now have a capacity of 4.7 GW. They provide around 16 percent of the country's total electricity consumption.
Another goal of the energy agreement, to award tenders for offshore wind farms subsidy-free, has outperformed expectations. The first subsidy-free tender was awarded in 2017. This was made possible by Dutch policies that established offshore power grids to transport electricity from wind farms to land and through supporting developers with ready-to-go permits. In the past this approach sufficed for bids to be won through tenders that were both financially and qualitatively sound.
Rising costs
Meanwhile, the Netherlands' ambition is to have 21 GW of offshore wind power by 2030-2031. However, the development of new wind farms is under threat to stagnate as investors have become reluctant for a variety of reasons. Increased material and production costs, higher interest rates, short supply in the raw materials market and uncertainty about the future are driving up costs, and this does not appear likely to improve in the near future. Participants in the supply chain, such as ports or the producers of foundations and turbines, are also reluctant to make substantial investments due to the above. On top of that, installation capacity is limited. Transporting and installing components for wind farms requires heavy and highly specialized equipment. The availability of such equipment is limited, making it especially difficult to compete in an internationally competitive market.
And even more is at stake. The construction of each wind farm impacts on plant and animal life, including vulnerable and protected marine species such as sea mammals, fish and birds. Minimizing this ecological impact – or better yet, improving biodiversity at sea – is a moral responsibility that needs to be acted upon without delay. If this is not adequately addressed, it could impede further development. An unacceptable ecological impact could result in a total ban on wind farm construction in ten years’ time.
The energy sector is committed to conducting extensive research into new knowledge and techniques to reduce the environmental effects of wind farm construction, but this requires substantial investment in innovation, research programs and more expensive installation technologies.
This increases the already relatively high costs. Furthermore, as an industry and society, we also want all materials used in the construction of wind farms to be sourced as ethically as possible, to be sustainable and to be recyclable. This too, however, has cost implications. For instance, a considerable amount of steel is used in the construction of a wind turbine, but the cost of conventional steel is still significantly lower than that of green steel.
Declining Demand
In addition to the rising costs, the lagging demand for green energy also exacerbates the stagnation in the expansion of offshore wind energy. Recently, Vattenfall, in collaboration with Copenhagen Infrastructure Partners (CIP), won the tender for the Zeevonk project, which includes a wind farm with a capacity of at least 2 GW by 2029 and an electrolyzer for green hydrogen production.
Vattenfall’s bid was made with the expectation that there would soon be a sufficient number of buyers for such generated renewable electricity. However, the outlook for the future is becoming increasingly uncertain. For a long time, it was assumed and expected that demand for green electricity would naturally follow the availability of supply.
However, this did not follow automatically. The limited willingness and/or financial capacity of large consumers to pay a price for green electricity that aligns with the increased costs of offshore wind energy make it nearly impossible for new projects to be financially viable. Currently, there is a lack of clear and stable government policy to stimulate the demand for renewable electricity and thus further reduce CO₂ emissions. After years of robust development of offshore wind energy, we have reached a point, in part due to this lack in policy, that new parks cannot simply be added. A shift in strategy and the current system is urgently needed.
Roadmap electrification
What needs to be done to increase the appetite for investment in the offshore wind energy market from both developers and the supply chain, and to boost demand from industry? Part of the solution lies in strong government policy. Although the existing Offshore Wind Roadmap has laid out clear agreements regarding the development of offshore wind farms, there is no specific policy focused on creating a market for all such renewable electricity. There has long been a justified call for a roadmap electrification, which would outline a detailed and actionable plan for transitioning Dutch industry to electricity as its primary energy source. Such a roadmap should align with the tailored agreements on sustainability currently being concluded between the government and industry. Set clear, ambitious goals for the shift to green energy, but also ensure that the necessary tools and budget are in place to achieve these targets. This represents a dual step forward. It will prove a powerful instrument to ensure feasible growth of the wind sector, as well as creating a sustainable industrial sector. Additionally, expanding affordable and sustainable energy infrastructure should be a priority so companies no longer get paralyzed by grid congestion issues.
Steady Progress
Aligning demand, supply, and infrastructure are crucial pillars for the further expansion of offshore wind farms. Should one of these lag behind, it will drag the others down with it. This is not a novel or unexpected problem, but there is also no immediate solution. We will need to be realistic. The unpopular message might be that the rollout of offshore wind energy should temporarily be slowed down. This does not mean that we abandon our ambitions, but steady progress is more productive than holding on to ambitious targets with tenders no one wants to bid on, or projects that are simply not feasible because the demand is lacking and/or the infrastructure is inadequate. The harm this will do to investor confidence will only further undermine the willingness to invest. We should also acknowledge the positive developments. For instance, in September 2024, the Ministry of Climate and Green Growth decided to split new wind energy plots into smaller units of 1 GW from then on. This way, investment per wind farm and the accompanying financial risks will be reduced. It is also positive that the Dutch government intends maintaining the system whereby it guarantees grid connection and permits, thereby keeping the risks and costs for Dutch projects as low as possible.
More, however, is now needed. The 2013 Energy Agreement was a success, but it is utopian to expect a system designed back then to function indefinitely. Adjustments are needed to accommodate or allow correction for new developments. It is therefore timely for the government, business and society to sit down together and develop an integrated plan for offshore wind and electrification. We share the same goal: a climate-neutral energy system by 2050. This will however only become viable if we make agreements on aligning the deployment of offshore wind energy and electrification – who does what and when – together, while also considering current market conditions and flexibility to be able to adjust where possible or necessary. Only then will the cost-benefit balance of offshore wind farms be restored and will we have sufficient investor interest again. Should we succeed in this, offshore wind energy will once more become a success story.
This essay was published in Management Scope 02 2025.