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Pioneering PE Investment in Offshore Wind Vessels

AIIB Blog Article by Dr. Jingyi Zhang, Danni Li, and Olivier Ferrage

December 8, 2023 at 4:00:00 AM

Offshore wind is becoming an increasingly important pillar of the clean energy transition. Total installed capacity has nearly trebled between 2018 and 2022, with Asia Pacific—notably China—and Europe leading the way. This rapid growth is expected to continue toward 2050 as countries race to decarbonize their economies. However, the sector has recently been hit by surging financing and supply chain costs, threatening the pace of development. In this context, investment in the supply chain, including offshore wind vessels, is more critical than ever. It was reported that offshore wind vessels represent a USD20 billion investment opportunity while warning of significant risks of shortages by 2030.1 Both wind-rich (e.g., China, Korea, Viet Nam) and wind-poor (e.g., Singapore, Malaysia, Indonesia) countries have the potential to benefit from investment in the reconversion, design, build, and operations of offshore wind farm vessels. The Asian Infrastructure Investment Bank’s (AIIB) investment in the offshore wind farm vessel sector through the Seraya Energy Transition and Digital Infrastructure Fund aims to support the development of offshore wind and help alleviate the cost pressures faced by the industry. This blog and its associated white paper on “Offshore Wind Farm Vessels Critical for Asia’s Energy Transition” as mentioned below are well aligned with the third core theme that AIIB will focus on for COP28, i.e., Tailored Innovations on Financing and Technologies.

Offshore wind has a key role to play in Asia-Pacific’s energy transition, but challenges remain

The Asia-Pacific region is responsible for about half of the world’s CO2 emissions. Offshore wind taps into the infinite and renewable wind energy available out at sea which can complement ground-mounted solar and onshore wind farms and play an essential role in the energy transition. McKinsey expects offshore wind installed capacity to reach 630 GW by 2050, up from 40 GW in 2020, with Asia Pacific leading the way.2

Offshore wind presents unique advantages compared to other renewable energy sources. Taking advantage of strong and stable sea winds, offshore wind projects produce on average about twice as much power as solar photovoltaic (PV) plants of the same size. In addition, they can be placed along the coast, close to major cities and industrial clusters, avoiding significant grid investments.

However, developing offshore wind farms is still relatively costly compared to onshore wind and solar PV and the industry’s margins are being squeezed. While costs had been decreasing steadily in the last decade, recent increases in the costs of components, labor, and financing are causing a reversal of this trend. A wind turbine produced in 2023 now costs 38% more to produce than in 2020,3 bringing costs back to 2012 levels, mostly driven by a doubling of prices for key critical minerals. This is posing a threat to the pace of offshore wind development. A Swedish developer announced in August this year that it would abandon the development of an offshore wind farm in the United Kingdom, citing rising costs.4 Likewise, several projects being developed in Southeast Asia are currently at a standstill as the tariffs offered do not make them commercially viable amidst spiraling costs.5

In such a context, continued investment in the offshore wind supply chain will be paramount as demand continues to increase. As a critical component in offshore wind’s value chain, significant investment in offshore wind farm vessels is needed.

Significant investment in offshore wind vessels is needed

The global offshore market size for wind turbine installation vessel was estimated to be worth USD2.4 billion in 2022 and is forecast to grow to USD5.6 billion by 2028, with a Compound Annual Growth Rate (CAGR) of 15.6%.6 However, research indicates that there is a shortage of offshore wind vessels. Rystad Energy, for example, predicts that by 2024, demand for wind turbine installation vessels will outpace supply.7 Similarly, Bloomberg New Energy Finance predicts that there will be a shortfall of foundation installation vessels by 2024 and the shortfall of vessels will put 35.4 gigawatts (GW) of offshore wind at risk till 2030. It was reported that according to an International Finance Corporation study, nearly 200 vessels dedicated to emerging markets in Asia, the Americas and Eastern Europe will be required.8 To meet the timelines of wind farm installations announced in Asia, the region needs to invest in its own fleet of vessels.

As explained in the AIIB and Energy Foundation China white paper, Offshore Wind Farm Vessels Critical for Asia’s Energy Transition, a large number of specialized vessels are necessary to build an offshore wind farm including, among others, for foundation installation, wind turbine installation, cable laying, and service operations (Table 1). To prevent bottlenecks, investment must be targeted considering the supply and demand of each type of vessel.

Table 1: Vessel types required for offshore wind farm installations and maintenance

Survey Vessels

  • Undertake geological surveys and seabed mapping to identify location and routes.

Foundation Installation Vessels; Heavy Lift Vessels

  • Installation of fixed foundations e.g. monopiles, jackets.

  • Installation of offshore substation.

Cable Laying Vessels and support vessels

  • Carry and install cable for connections between turbines substations and shore.

  • Accompanying vessels perform other functions including trenching, burial

Wind Turbine Installation Vessels

  • Transport turbines from shore and install on fixed foundations.

  • Floating offshore wind systems can be towed by tugs.

Service Operations Vessels

  • Involved in the commissioning and ongoing operations and maintenance of offshore wind farms.

Other support vessels

  • Other vessels including:

    • crew transfer vessels which provide ferrying services to / from offshore wind farms.

    • Offshore support vessels to transport supplies, equipment and provide accommodation for crew

Source: AIIB and Energy Foundation China. 2023. Offshore Wind Farm Vessels Critical for Asia’s Energy Transition White Paper.

Offshore wind vessels must be adapted to the changing needs and requirements

An important consideration when assessing the future supply and demand balance in vessels is the trend toward bigger wind turbines and larger wind farms. For example, between 2010 and today, the amount of wind energy a turbine can harness has more than doubled from 3 MW to 6.5 MW, and by the end of the decade, more than half of turbines installed globally are projected to be larger than 8 MW.9 This trend necessitates vessels with greater capacities and larger cargo decks, exacerbating the vessel shortage problem.

Another important consideration is that future vessels need to be greener and more technically advanced. The shipping industry is currently a significant source of greenhouse gas emissions and other pollutants. Low-emission engines, battery storage, and wind-assisted propulsion are areas being explored. Newer and technically advanced vessels are also being designed to improve the efficiency and cost-effectiveness of offshore wind projects.

Investing in Seraya Energy Transition and Digital Infrastructure Fund

On March 22, 2023, AIIB approved the investment in the Seraya SEA Energy Transition and DI Fund (the Fund), a private equity fund managed by Seraya Partners. With target commitment of USD750 million, the Fund aims to support energy transition and develop green digital infrastructure by building and developing mid-market infrastructure platforms with assets across Southeast Asia (at least 80%), China and Korea (no more than 20%).

The Fund targets to allocate 60-75% of its funds in energy transition opportunities (e.g. offshore wind farm vessels, transport electrification, low energy solutions, and other related sub-sectors) and 25-40% in digital infrastructure (e.g. data centers). As part of the Fund's strategy, three sub-sector platforms have been established, including Cyan Renewables (offshore wind farm vessels), Empyrion DC (green data centers), and Astrid Renew (low carbon energy transition solutions). A key differentiator for the Fund is that it will look at value chain issues and invest into supply chain components that are critical for power generation projects in Asia, such as offshore wind farm vessels and energy storage (target to account for circa 30% of total Fund’s investment). With AIIB’s investment, the project targets to service 10 GW of wind farms through the underlying vessel assets by 2027, with 50% of the vessels to possess green credentials. AIIB’s investment will be key in building a stronger supply chain in Asia-Pacific’s offshore wind market.

The investment strongly aligns with AIIB’s thematic priorities, sector strategies, and portfolio diversification target. This investment demonstrates AIIB’s commitment to not only focus on financing infrastructure that are end solutions such as solar and wind generation projects, but also focus on optimizing the entire value chain of infrastructure, i.e., clean technology can only be adopted at scale if supply chain is widely available and costs come down quickly. The Fund will promote three thematic priorities including green infrastructure, connectivity and regional cooperation, and technology-enabled infrastructure. The investment will diversify AIIB’s equity portfolio in Southeast Asia members and build AIIB’s knowledge in the target sectors.

About AIIB

The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank whose mission is financing the Infrastructure for Tomorrow—infrastructure with sustainability at its core. We began operations in Beijing in January 2016 and have since grown to 109 approved members worldwide. We are capitalized at USD100 billion and Triple-A-rated by the major international credit rating agencies. Collaborating with partners, AIIB meets clients’ needs by unlocking new capital and investing in infrastructure that is green, technology-enabled and promotes regional connectivity.

About Seraya Partners

Based in Singapore, Seraya Partners is an independent private equity firm investing in Next Generation Infrastructure. With approximately USD1 billion in AUM across its funds and co-investment vehicles, Seraya manage long-term capital for institutional investors and family offices around the world. Seraya was established in 2020 and received the Capital Markets Services License from the Monetary Authority of Singapore in 2021.

1 Clarksons. 2023. News and Insights 2023 (excludes China and floating offshore wind).

2 McKinsey. April 20, 2022. How to succeed in the expanding global offshore wind market.

3 Nick Ferris. April 25, 2023. Data insight: the cost of a wind turbine has increased by 38% in two years. Energy Monitor.

4 Susanna Twidale. July 20, 2023. Vattenfall halts project, warns UK offshore wind targets in doubt. Reuters.

5 Joo Yeow Lee and Vince Heo. Jan. 18, 2022. Seizing offshore wind investment potential in Southeast Asia. SP Global.

6 Vanguard Market Research: Offshore Wind Energy Market Size, Share & Trends Analysis Report by Component (Turbines, Electrical Infrastructure, Substructure, Others), by Location (Shallow Water, Transitional Water, Deep Water), by Region (North America, Europe, Asia Pacific, Latin America, Middle East & Africa) - Global Industry Assessment (2016 - 2021) & Forecast (2022 - 2028)

7 Justine Calma. Feb. 2, 2022. Offshore wind projects are outpacing the ships that build them. The Verge.

8 Diep Nguyen-van Houtte and Femi Akinrebiyo. June 20, 2022. Growing offshore wind in emerging markets won’t come cheap – $8bn is needed for vessels and factories. Recharge.

9 Calma. Offshore wind projects are outpacing the ships that build them. Ibid.


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