For all of its potential, offshore wind power simply hasn't lived up to the hype. But the global industry appears to be at a tipping point.
After settling at just 19,000 megawatts of installed capacity at the end of 2017, global offshore wind power capacity is expected to soar past 100,000 megawatts by 2030. That's a compounded annual growth rate of nearly 15% -- and it might be captured by only a handful of companies.
That's because, due to the difficulty of construction and the engineering and manufacturing expertise required to forge turbines, there simply aren't many players in the global industry. In fact, one company owns a staggering 70% market share to go along with the largest order backlog on the planet. That company is not General Electric (NYSE:GE).
Despite getting steamrolled by Siemens (OTC:SIEGY) so far, it's early enough for General Electric to make up ground -- perhaps quickly -- if it can land a few big projects. The power leader has an ambitious plan to do so, but investors shouldn't pencil in success just yet.
Go big or go home?
Siemens has raced out to an early lead in offshore wind power thanks to a giant boost from geography. Siemens Gamesa Renewable Energy is based in Spain, and the European Union was one of the first regions to experiment with the coastal renewable-energy source. At the end of 2017, it was home to 83% of the planet's installed capacity. Well played, Siemens.
But geography isn't the only factor driving the company's success. Siemens Gamesa sports a portfolio of offshore turbines at the 6-, 7-, and 8-megawatt weight classes (most onshore turbines are around 2.5 megawatts), which provides flexibility to project owners. That has a lot to do with the company's impressive resume, having installed 11,000 megawatts globally to date and stuffed the order backlog with another 1,700 megawatts.
How does General Electric expect to compete with that? One word: size. Actually, two words: unbelievable size.
In March 2018, the American industrial conglomerate launched the Haliade-X offshore wind turbine platform with the monstrous Haliade-X 12-megawatt turbine. That's easily the largest in the world. To put the product into perspective, consider that:
- It's 853 feet tall counting only what's visible above the surface of the water. That's taller than the tallest building in Boston, Pittsburgh, or San Francisco.
- Its blades are 351 feet long. The Statue of Liberty is "only" 305 feet tall.
- It can generate 67 gigawatt-hours of electricity per year. That's enough energy to power 6,223 American homes for an entire year, according to numbers from the U.S. Energy Information Administration.
- It's expected to generate 45% more electricity than any other offshore wind turbine available today.
- It's expected to boast a capacity factor (a measure of how often a power asset operates at its rated capacity) of 63%. That's more than the average American fossil fuel power plant has achieved in years.
In other words, General Electric is banking on bigger being better when it comes to offshore wind power. In fact, the company is investing more than $400 million in the next three to five years to make the Haliade-X platform a commercial reality, with most going to support the capabilities of rotor blade manufacturer LM Wind, which it acquired for $1.7 billion in April 2017. That doesn't mean the 12-megawatt monster is off limits until then, however, as it's currently being bid for projects expected to ship in 2021.
That could provide a big boost to General Electric's renewable-energy business segment, which reported $294 million in revenue from offshore wind power in the first half of 2018, up from just $89 million in the year-ago period. All of that was likely derived from the Haliade 6-megawatt turbine -- the only other offshore turbine offered by the company. Investors should expect even greater sales figures once the Haliade-X 12-megawatt turbines become available. Right?
Well, maybe not. While a 12-megawatt turbine is impressive on paper (and will be in person), there are practical reasons it may be a commercial dud.
For instance, one of the biggest concerns when siting a field of turbines in coastal waters is whether they can be seen by a person standing on the shore. An 853-foot-tall turbine is nearly twice as tall as most 6-megawatt turbines, which doesn't bode well for its ability to keep a low profile. That means they'd have to be located even farther offshore, which could keep them from getting off to a strong start in the world's hottest emerging market for offshore wind power: the United States.
The United States owns just 30 megawatts of offshore wind-power capacity today (powered by General Electric turbines), but the national pipeline is bursting at the seams with 23,735 megawatts of potential projects. However, that pipeline comprises acreage auctioned off already, and most of those blocks are likely too close to shore to support the monstrous Haliade-X 12-megawatt turbines.
In fact, most American offshore wind projects announced to date have opted for smaller turbines. For instance, Dominion Energy is developing the Coastal Virginia Offshore Wind project with the help of Orsted, a leading offshore wind farm developer. The pair will start by testing two 6-megawatt turbines -- supplied by Siemens Gamesa. If the economics work and regulatory approval is secured, then the project could grow to 2,000 megawatts when all is said and done.
That brings up another important point for General Electric investors to consider. No American companies have the expertise (yet) to design, test, or build a massive offshore wind project, which has pushed many first movers to tap European developers such as Orsted. And because Orsted is more familiar with certain suppliers -- like its European peer Siemens Gamesa -- it's more likely to continue leveraging those working relationships. Case in point: since 2013, the pair has teamed up on 2,700 megawatts of projects, with plenty more exploratory projects underway.
General Electric needs a big score to prove its strategy
Is bigger really better in offshore wind power? It very well might be, but there will be a limit to turbine sizes that have to balance economics, siting, and construction difficulty. If that limit ends up being below 12 megawatts, then it could set General Electric back even further compared to peers such as Siemens that have stayed the course with offshore turbines of 8 megawatts and below. Investors might rather see the American industrial conglomerate build out its portfolio of smaller turbines, which right now includes only the Haliade 6-megawatt model.
That said, if the industry really does move to bigger turbines that are sited farther offshore, and the 12-megawatt monster fits the bill, then General Electric could be well positioned to capitalize on the industry's wild expected growth in the next 12 years -- if its relatively sparse offshore resume doesn't keep it from winning projects.