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Offshore wind to become a $1 trillion industry

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Offshore wind power will expand impressively over the next two decades, boosting efforts to decarbonise energy systems and reduce air pollution as it becomes a growing part of electricity supply, according to an International Energy Agency report published today.

Offshore Wind Outlook 2019 is the most comprehensive global study on the subject to date, combining the latest technology and market developments with a specially commissioned new geospatial analysis that maps out wind speed and quality along hundreds of thousands of kilometres of coastline around the world. The report is an excerpt from the flagship World Energy Outlook 2019, which will be published in full on 13 November.

The IEA finds that global offshore wind capacity may increase 15-fold and attract around $1 trillion of cumulative investment by 2040. This is driven by falling costs, supportive government policies and some remarkable technological progress, such as larger turbines and floating foundations. That’s just the start – the IEA report finds that offshore wind technology has the potential to grow far more strongly with stepped-up support from policy makers.

Europe has pioneered offshore wind technology, and the region is positioned to be the powerhouse of its future development. Today, offshore wind capacity in the European Union stands at almost 20 gigawatts. Under current policy settings, that is set to rise to nearly 130 gigawatts by 2040. However, if the European Union reaches its carbon-neutrality aims, offshore wind capacity would jump to around 180 gigawatts by 2040 and become the region’s largest single source of electricity.

An even more ambitious vision – in which policies drive a big increase in demand for clean hydrogen produced by offshore wind – could push European offshore wind capacity dramatically higher.

China is also set to play a major role in offshore wind’s long-term growth, driven by efforts to reduce air pollution. The technology is particularly attractive in China because offshore wind farms can be built near the major population centres spread around the east and south of the country. By around 2025, China is likely to have the largest offshore wind fleet of any country, overtaking the United Kingdom. China’s offshore wind capacity is set to rise from 4 gigawatts today to 110 gigawatts by 2040. Policies designed to meet global sustainable energy goals could push that even higher to above 170 gigawatts.

The United States has good offshore wind resources in the northeast of the country and near demand centres along the densely populated east coast, offering a way to help diversify the country’s power mix. Floating foundations would expand the possibilities for harnessing wind resources off the west coast.

“In the past decade, two major areas of technological innovation have been game-changers in the energy system by substantially driving down costs: the shale revolution and the rise of solar PV,” said Dr Fatih Birol, the IEA’s Executive Director. “And offshore wind has the potential to join their ranks in terms of steep cost reduction.”

Dr Birol launched this special report today in Copenhagen, Denmark – the birthplace of offshore wind – alongside the Danish Minister for Climate, Energy and Utilities, Dan Jørgensen.

The huge promise of offshore wind is underscored by the development of floating turbines that could be deployed further out at sea. In theory, they could enable offshore wind to meet the entire electricity demand of several key electricity markets several times over, including Europe, the United States and Japan.

“Offshore wind currently provides just 0.3% of global power generation, but its potential is vast,” Dr Birol said. “More and more of that potential is coming within reach, but much work remains to be done by governments and industry for it to become a mainstay of clean energy transitions.”

Governments and regulators can clear the path ahead for offshore wind’s development by providing the long-term vision that will encourage industry and investors to undertake the major investments required to develop offshore wind projects and link them to power grids on land. That includes careful market design, ensuring low-cost financing and regulations that recognise that the development of onshore grid infrastructure is essential to the efficient integration of power production from offshore wind.

Industry needs to continue the rapid development of the technology so that wind turbines keep growing in size and power capacity, which in turn delivers the major performance and cost reductions that enables offshore wind to become more competitive with gas-fired power and onshore wind.

What’s more, huge business opportunities exist for oil and gas sector companies to draw on their offshore expertise. An estimated 40% of the lifetime costs of an offshore wind project, including construction and maintenance, have significant synergies with the offshore oil and gas sector. That translates into a market opportunity of USD 400 billion or more in Europe and China over the next two decades.

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Lao Economy Set to Recover if Threats Can Be Contained

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While economic growth in the Lao PDR contracted in 2020 for the first time in over two decades, the economy is set to recover in 2021 and in the medium term, provided the impact of the COVID-19 pandemic is contained and business can resume with trading partners, according to a World Bank report released today.

The latest Lao PDR Economic Monitor — Supporting Economic Recovery — finds that the COVID-19 pandemic has had significant adverse effects on growth across the country, plunging the economy into its first recession since the Asian financial crisis of the late 1990s. The report estimates that the economy will shrink by 0.6 percent in 2020, with tourism services, wholesale and retail trade, and manufacturing most seriously affected.

Declining economic activity has reduced the government’s ability to collect revenues, which in turn has led to a worsening fiscal situation. The kip has lost value against foreign currencies and this depreciation, along with rising food prices, has caused higher headline inflation.

While the Lao PDR has so far done very well to contain the spread of COVID-19, the economic effects of the outbreak have affected the livelihoods of millions of Lao people, and pose a serious risk to sustained poverty reduction”, said Nicola Pontara, World Bank Country Manager. “However, if the pandemic remains under control domestically and business can resume with trading partners, we can expect some recovery in 2021”.

According to the report, GDP growth is expected to rebound to 4.9 percent in 2021. Medium-term growth would also gradually recover as a result of infrastructure investment and a further pick up in services, exports, and private consumption. More COVID-19 outbreaks, however, would pose challenges for the recovery, due to the knock-on effects of potential lockdowns or restrictions on trade and tourism.

The report also highlights the rising public external debt burden. External debt and low foreign currency reserves limit the government’s capacity to adopt a robust fiscal stimulus. Moving forward, priorities include putting public external debt on a sustainable trajectory, improving the generation of revenue to create fiscal space, and supporting those households and firms most severely affected by the economic downturn.

A thematic section, Livelihoods in the Time of COVID-19, identifies the groups most vulnerable to the pandemic, and recommends policy options that could help protect their livelihoods. These include expanding coverage of cash and in-kind food transfers, and promoting skill development for laid-off workers and returned migrants.

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Turkey: A full recovery from the COVID-19 crisis will take time

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The COVID-19 crisis has hit Turkey’s people and economy hard, accentuating pre-existing challenges such as the low share of workers in formal employment and obstacles to firm expansion. Well-designed support to households and firms that is aligned with a return to macroeconomic stability, and reforms to improve competition and labour laws, institutions and business would help to build a lasting recovery, according to a new OECD report.

The latest OECD Economic Survey of Turkey says a full recovery from the COVID-19 crisis will take time, given the blow from the drop in tourism and uncertainty over the future evolution of the pandemic, as well as Turkey’s limited welfare provisions and high levels of corporate and household debt. The crisis has put pressure on the viability of many businesses and on social cohesion, hitting informal workers, women, refugees and youths particularly hard. While a one-size-fits-all support strategy was justified during the first phase of confinements, policy support in the second wave of the pandemic should now be adapted to the varying conditions of sectors, workers, households and companies.

The pandemic has also amplified monetary policy challenges, with inflation surging further to well above Turkey’s 5% official target following interventions to shore up economic activity, bank liquidity and the Lira currency. Support to people and firms should be provided in a transparent and stable way to build investor confidence and reduce the risk of abrupt movements of capital. For example, targeted allowances for a stated period can be more effective than concessional loans and one-off transfers. Turkey should also seek to replenish foreign reserves and restore the independence of the Central Bank, the Survey says.

In parallel to the pandemic, Turkey remains exposed to geopolitical and trade risks, including the effect of the United Kingdom’s exit from the EU. As things stand, and factoring in headwinds from the second wave of the pandemic, the Survey projects Turkey’s GDP rebounding by 2.6% in 2021 and 3.5% in 2020.

“Turkey is looking at a gradual recovery from the COVID-19 crisis and risks persist for growth and well-being,” said Alvaro Pereira, OECD Director of Economic Country Studies. “The focus should be on restoring macroeconomic stability and seeing the post-crisis period as an opportunity to encourage foreign and domestic investment through stronger public governance, and to use market and labour reforms to empower businesses to grow and create quality jobs.”

Once a recovery is under way and investor confidence restored, the Survey estimates that a combination of market, institutional and education reforms could lift GDP per capita by 1% per year over the coming years. Market liberalisation reforms should include removing anticompetitive regulatory barriers in product markets, increasing labour market flexibility and reducing corporate income tax, while institutional reforms should improve public governance and the formalisation of business activities.

While the dynamism of Turkey’s business sector, and the country’s strong entrepreneurial spirit and youthful workforce, have been an asset through the COVID-19 pandemic, the majority of Turkish firms are very small and have limited capacity to weather a protracted slowdown. Significant parts of the business sector rely on informal or semi-formal practices in employment, corporate governance, financial transparency and tax compliance. Easing overly stringent regulations on product and labour markets and simplifying business and tax systems would make it easier for young firms to grow and move to the formal sector. A modernized and more efficient business sector would also help firms to emerge stronger from the crisis.

In terms of labour reforms, cutting non-wage labour costs, shifting part of the cost of social protection to sources other than payroll contributions, making statutory minimum wages affordable for low-productivity firms, and modernising regulations for temporary as well as permanent contracts would stimulate the creation of formal jobs once the recovery takes hold.

Education reforms should seek to enhance adult skills in a country which ranks among the highest in the OECD for qualification mismatch, with 43% of the working population either over-qualified (29%) or underqualified (14%) for their job. Investing more in Research & Development and in digital technology and infrastructure would also raise growth prospects.

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Call for Closer Policy Collaboration on Artificial Intelligence

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A recent APEC Business Advisory Council (ABAC) report revealed that artificial intelligence (AI) has a role to play in mitigating both the short and long-term effects of the COVID-19 pandemic on APEC economies.

From automated health diagnostics in hospitals to smart recruitment processes in organizations, the report, titled Artificial Intelligence in APEC, finds that this technology is creating new, previously unforeseen jobs, products and services that will contribute to the post-COVID-19 economic recovery.

“As we release this report, APEC economies are facing the twin threats of a global pandemic and an economic crisis that will leave its mark on our communities for years to come,” said Dato’ Rohana Tan Sri Mahmood, Chair of the 2020 APEC Business Advisory Council.

“How APEC economies address the accelerated rise of the digital economy and leverage new technologies like AI is one of the most pressing issues of our time,” she added.

The report also examines how AI is being adopted and applied across the region and makes key recommendations calling for closer policy collaboration between business and governments.

Of the surveyed APEC economies, the report found that most already have plans, policies or programs devoted to driving or supporting AI ecosystems. In fact, the report highlights some of the AI-related innovation already underway across the region, including finding ways to help patients suffering from locked-in syndrome to communicate with the world by a team of engineers at a university in the Philippines.

Another notable innovation will benefit the farming industry. A Japanese corporation is trying to improve the efficiency of farming by automatically aggregating and analyzing sensor data and satellite images to provide farmers with farm management recommendations. In addition, a group from New Zealand developed AI-powered crocodile-spotting drones to keep swimmers safe in Australian rivers, among others.

“AI technologies have the potential to significantly impact businesses and communities across our economies,” Dato’ Rohana explained. “We believe that APEC can serve as an effective forum for member economies to collaborate on ways to maximize the benefits of AI and promote inclusive growth while ensuring its use in a responsible and ethical manner,” she added.

According to the report, recognizing this technology and all its capabilities is a central component of an economy’s forward-looking policy for growth, productivity and job creation, highlighting that the potential of AI extends beyond economic benefits and includes tools to address complex issues such as poverty, inequality, climate change, healthcare and ways to cope with effects of the pandemic.

As AI becomes more widely accepted, adopted and used for innovation, the report suggests that APEC policymakers will need to draft new policies, revise existing ones, confront new questions, address new needs and reassess its impact.

“With the cooperation of the public and private sector, a coordinated future of AI will increase the Asia-Pacific region’s competitiveness and further facilitate regional integration,” the report notes.

Artificial intelligence, already well on its way to transforming the Asia-Pacific, drives social and economic growth across all key sectors. However, the pandemic, and the ensuing focus on economic recovery, brings a renewed sense of urgency to discussions around AI usage. 

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