Becoming an industry leader can take years of planning, resilience in the face of failure, and a lot of investment. It's hard to pick a winner early, but oil giant Equinor ASA (NYSE:EQNR) could be a dark horse contender to lead the emerging offshore wind energy market.
Here's why the offshore wind market is attractive, and why Equinor's existing and planned portfolio gives it an edge.
The offshore wind market
There are many ways to invest in offshore wind, from turbine manufacturers like Siemens and GE to investment companies to operators like Equinor. As an operator, it manages the project and sells electricity -- which has a fairly steady demand cycle because of its essential nature -- to utilities through power purchase agreements (PPAs). Manufacturers are more vulnerable than operators to supply constraints and demand for new projects, which can be swayed by government policy.
Offshore wind is by far the largest share of Equinor's renewable energy portfolio, and for good reason. The International Energy Agency (IEA) estimates that offshore wind could grow into a $1 trillion industry after expanding over the next 20 years. According to Equinor, Europe currently has 18.5 gigawatts (GW) of installed capacity. The company believes the global capacity of offshore wind could reach more than 100 GW by 2030, of which 10% would be in floating offshore wind. Given its current projections, Equinor would be a major operator in the global offshore wind market.
Industry-leading offshore wind portfolio
In terms of dedication, accomplishments, and spending, Equinor's existing and planned projects combine for arguably the most impressive offshore wind portfolio of any operator in the world.
Equinor's current renewables capacity is small at just 0.5 GW, but its four active projects and six planned projects amount to 8.6 GW of capacity -- which would offer enough electricity to power 11 million homes per year. If Equinor executes these projects on time, it would position the company significantly ahead of its 2026 renewable capacity goal of 4 GW to 6 GW and on track to hit its 2035 renewable capacity goal of 12 GW to 16 GW.
Equinor developed its first offshore wind farm in 2011 with a 40% ownership in the $1.8 billion, 317 megawatt (MW) Sheringham Shoal Offshore Wind Farm. Its third project was a 30 MW, $220 million venture off the coast of Scotland in 2017 that was the first commercial wind farm to use floating units. In 2019, Equinor's 50% interest in the $1.4 billion Arkona Offshore Wind Farm project made for the largest wind farm in the Baltic Sea with 60 wind turbines running 6 MW at a total capacity of 385 MW.
The 11-turbine Hywind Tampen project, the second floating offshore wind project for Equinor, is expected to be completed in the third quarter of 2022 and use 8 MW wind turbines to provide 35% of the annual power demand for five of Equinor's offshore drilling platforms.
Equinor's 50% interest in the Dogger Bank Wind Farm off the U.K. coast in the North Sea is the world's largest planned offshore wind farm set to construct a total of 3.6 GW in three phases starting in 2023. Its Empire Wind project 20 miles south of Long Island, New York, is the largest US-related planned wind project at an estimated cost of $3 billion. Its Baltyk 1,2, and 3 projects and Beacon Wind round out the list of planned projects between now and 2027. Equinor also hopes to become a partner in Japanese offshore wind. Japan's offshore wind capacity is estimated to be 600 GW, but its installed capacity is just 50 MW.
Ahead of the curve
Equinor has already accomplished a lot with offshore wind, and its upcoming projects are expected to shatter even more records. Access to capital from an established company, first-mover advantage, and familiarity with offshore energy technology all provide Equinor with the tailwinds it needs to become a leader in the offshore wind market.