Offshore wind expansion to bolster future steel demand

The steel industry will have a vital role to play in the coming acceleration of global offshore wind installations, with 4.5mn t of potential steel demand to be created from offshore auctions this year alone.

As countries across the globe grapple with the dual challenges of ensuring energy security and meeting climate targets, the renewable energy sector is gathering momentum, with installed offshore wind capacity forecast to increase from 60GW in 2023 to 130GW by 2027.

Increasing political momentum

The global focus on renewables and offshore wind generation has been intensified by a growth of energy security concerns on the international political agenda since the start of the conflict in Ukraine in February 2022.

At the EU level, the European Commission's REPowerEU plan sought to end the bloc's reliance on Russian fossil fuels by 2027, with a €20bn ($21bn) funding pot for renewables. The UK published an ambitious Energy Security Strategy in April 2022 that increased the government's target for offshore wind development from 40GW to 50GW by 2030. In the US, the Inflation Reduction Act has extended tax credits for renewables until 2032. The International Energy Agency (IEA) forecasts that by 2027, US annual wind and solar photovoltaic (PV) capacity expansions will double compared with 2021, and the administration of President Joe Biden has set a 30GW offshore wind capacity target for 2030. China is expected to reach its 2030 target of 1,200GW of total wind and solar PV capacity five years early, with plans to accelerate large-scale renewable energy deployment outlined in the country's 14th five-year plan.

Stimulating steel demand

Offshore wind power generation capacity of 8.8GW came on line in 2022, with the Global Wind Energy Council (GWEC) estimating that annual offshore wind installation additions will reach 15 GW/yr after 2025, with a possible average of 26 GW/yr thereafter.

More than 80pc of the components in a wind turbine and related infrastructure are made with steel, including the foundations, tower, nacelle and generators, according to leading European steelmaker ArcelorMittal.

The 480MW Saint-Nazaire offshore wind farm in France is currently being built with steel from German supplier Dillinger — the heavy plate supplier specialist provided 80,000t of steel for the construction of 80 wind turbines. Sofia offshore wind farm — one of the largest offshore wind developments globally with 100 turbines totaling 1.4GW capacity — is due to be installed on the Dogger Bank in the central North Sea. The production of some of the monopile steel foundations has been awarded to Germany's Ilsenburger mill, a contract due to total 28,000t of plate for 2023.

And ArcelorMittal estimates that 120-180t of steel is required for each new megawatt of offshore wind power. With more than 25GW of additional offshore wind capacity set to be auctioned in 2023, up to 4.5mn t of future steel demand could be created this year alone.

But logistical constraints and inflationary headwinds could present challenges to the industry as it expands.

Industry challenges

The development of future wind capacity is at risk from threats to supply chains arising from inflation, rising interest rates, as well as logistical and regulatory constraints.

Permitting and grid bottlenecks could be limiting to a "crippling degree", according to the GWEC. And cost fluctuations in the wind sector are expected to reflect fluctuations in the underlying costs of capital, logistics and commodities — including steel. Argus assessed the monthly average of northwest European base-grade steel plate at €950/t ex-works so far this month, a 47pc decrease from the €1,800/t ex-works in May last year.

The GWEC also anticipates there could be tightness in the availability of offshore installation vessels in the longer term as construction ramps up. Vessels are expected to be of sufficient supply in China, but Europe and the US could experience shortages by the end of the decade.

The necessary expansion of fleets in coming years will require the supply of heavy and extra-heavy quarto plates for supply vessels and for the new generation of XXL and XXXL wind turbine installation vessels, particularly as technology and installation of floating offshore wind capacities mature. Although a potential hindrance to offshore wind expansion, vessel developments themselves present a possible demand stimulant too.

By Lizzy Lancaster