Floating offshore wind: Riding the wave | Fieldfisher
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Floating offshore wind: Riding the wave


Ireland, United Kingdom

Floating wind is on the cusp of major transformation as it moves from pilot projects to commercial scale wind farms, but making that leap involves overcoming technical, legal and financial challenges.
Floating offshore wind (FOW) promises to deliver affordable clean energy at significant scale. Unconstrained by depth or coastal topography, floating wind turbines can go beyond the limits of traditional bottom-fixed offshore wind farms, opening up huge market potential.

Driven by their climate policy objectives and geographical opportunities, the UK, Ireland and continental Europe are setting out to be among the leaders in FOW.

The UK currently has two operating FOW pilot projects: Equinor's 30MW Hywind Scotland project, the world’s first floating wind farm located 29km off the coast of Peterhead; and the 50MW Kincardine project, 15km off the coast of Aberdeen, developed by Kincardine Offshore Wind (KOWL).

Following the success of these projects, further UK pilots are planned and the first large-scale 100-300MW+ commercial projects are expected to come online within the next 5-10 years. Full-scale commercial projects of 1GW and above are anticipated post-2030.

In October 2021, the UK government committed £160 million to support FOW development off the coasts of Scotland and Wales. In Ireland, the Irish government announced in April 2021 that it plans to introduce the Maritime Area Planning (MAP) Bill 2021, which once passed should facilitate faster realisation of offshore wind projects, including FOW.

But while policy and regulatory environments are becoming increasingly favourable to FOW, project developers still need to obtain financing and establish commercially acceptable legal and technical risk mitigation frameworks to move the sector forward.

Below, we summarise some of the key considerations in relation to each of these topics.

Financing FOW: Risk analysis

To obtain finance, FOW developers must demonstrate the bankability of their projects.

Bankability describes the ability of a project to raise non-recourse financing from lenders on commercially reasonable terms for the project owners.

Due to its relatively early position in the development cycle, full non-recourse project finance has not yet been made available to the FOW sector.

At the development phase, financing tends to come from equity investors, with some recourse debt on offer, whereas project finance generally only becomes available at the construction and operation phase.

When project finance investors conduct risk analysis, they start by identifying all the possible risks, before evaluating the probability of those risks occurring (and what the costs will be if they do), and then looking at possible mitigation measures.

FOW projects are complicated infrastructure projects and consequently involve more risk-generating interfaces than is typically the case with traditional bottom-fixed offshore wind projects.

Financial advisers will have four main types of solution to these risks: technical, contractual, financial and insurance. The quality and track record of the project team is also important, as investors will want to be reassured that developers have the skills and experience to overcome any future obstacles.

The main risks investors will look at for FOW include:

  • Design and certification

Because the FOW market is moving from pilot projects to large-scale commercial projects, the reliability and robustness of the technology is very important for lenders and other stakeholders.

While the technology has been proven for FOW, this does not automatically translate into bankability.

This means investors will rely more heavily on certification of the technology, in the absence of performance track records. Investors should however take comfort from the significant yet relatively smooth technological leap achieved in bottom-fixed offshore wind projects.

For FOW, it is therefore critical that certification processes and methodologies keep pace with technological developments.

  • Turbine performance/choice of suppliers

One of the biggest interface risks is between the turbine and its floating foundation, as how the floaters perform will affect the performance of the turbine.

This risk is very specific to FOW and has no comparators in the bottom-fixed market.

Investors will want turbines to be sourced from well-known, reputable suppliers. However, because the first commercial FOW projects will be significantly smaller than bottom-fixed projects, it may be difficult to secure turbines from the 'big three' suppliers (Vestas, Siemens Gamesa and GE Renewable Energy), which tend to prioritise larger wind farms.

Investors will also look at a developer's choice of suppliers and contractors for other aspects of the project to assess their reliability.

  • Mooring systems

Mooring FOW floaters is a big technical challenge. However, experience from the oil and gas industry where sophisticated mooring systems are used for floating platforms will help investors allocate the risk.

  • Foundation fabrication
Foundations represent one of the most important elements of any offshore wind farm, as they must support the wind turbines, absorb all the forces and loads on the structure and provide a safe and stable base.

There is some flexibility in fabrication options for FOW, which can be made from steel, concrete, or a combination of both depending on what local supply chains can support, and can be quite modular in their construction.

Pilot FOW projects have illustrated that foundations used for this type of technology can survive harsh weather conditions, however the challenge for commercial FOW projects will be delivering these at scale.
  • Electrical infrastructure (cables)

The performance of the high voltage subsea cables that export electricity generated by the turbine has been the focus of a number of claims in bottom-fixed offshore wind.

The risks are even more acute for FOW, which requires dynamic cables (as distinct from the fixed seabed cables used for bottom-fixed wind farms). These dynamic cables need to withstand additional variables such as the movement of the floating platforms, large tensile loads due to the water depths, and significant hydrodynamic stresses generated by waves and currents.

Despite these additional technical challenges, investors are beginning to become more comfortable with the technology.
  • Turbine assembly

Turbine assembly for FOW is similar to that for bottom-fixed projects. As well as benefitting from the availability of knowledgeable contractors able to work on site, FOW also has the advantage of allowing for quay-side assembly, reducing the impact of adverse weather on activities.

However, developers will need to show what systems they have in place for turbine assembly and transporting the turbine to the project site, which will also require suitable port and supporting maritime infrastructure.
  • Operation, maintenance and decommissioning

These aspects of FOW are similar to those in the bottom-fixed market, but with the significant difference that FOW turbines can be disconnected and brought back to port for corrective maintenance activity.

While this reduces some risks and costs, it also creates new interface risks around the disconnection of the cable, transporting the installation and dealing with the turbine and mooring structure in-port.

Again, the need for good port and maritime infrastructure is essential for these functions.

Using legal contracts to cover risks

As with any large, complex project, well-drafted contracts will help parties address disputes, delays, non-performance and other legal pitfalls arising during the term of the FOW project, and thus reduce the risk of dispute escalation.

To date, two main contract types have been used in the global wind energy market: EPC contracts and multi-contract structures.

Under EPC contracts, a contractor agrees to design, develop and build the project and hand it to the developer on a turnkey basis. EPC contractors will assume most, if not all, of the development risk for a fixed price, making this type of contract particularly attractive to lenders.

Under the multi-contact approach, developers enter separate contracts with specialist contractors for each element of the project.

In bottom-fixed offshore wind projects, EPC contracts are relatively rare, because contractors are not willing to accept some of the specific risks associated with offshore wind, such as adverse weather conditions and unexpected seabed conditions.

While multi-contract approaches are more complex than EPC contracts, when properly drafted these structures provide strong protection from risks as well as additional flexibility not afforded by overarching agreements.

Routes to covering risks in contracts include:
  • Apportion liability

Multi-contract structures mean developers must apportion liability on a case-by-case basis, which can present coordination issues between the different interfaces, at the design, construction and programming stages of the FOW project.

To cover these risks, contracts can be drafted to include – for example – a detailed interface matrix, obligations around attending interface meetings and updating risk and notice registers, and/or by putting in place a robust project management and development agreement.
  • Warranties

Strong warranties will help parties allocate and manage risks for FOW projects. Due to the complexity of these projects, warranties are likely to be extremely detailed and contain information such as measurement test standards for the technology being used.

It is also important to bear in mind that standard exclusions may apply to these contracts – for example, a warranty may fall away if an operator uses a third party contractor to perform a particular piece of work.

Because FOW technology is so new, there will inevitably be a degree of nervousness around liability and performance. In this regard, it may be that the kinds of warranties currently used for bottom-fixed project contracts do not go far enough for FOW, particularly for early large-scale projects.

Lenders are therefore likely to look closely at who developers are contracting with, the track record of such contractors and what insurance arrangements those contractors have in place, and may not be willing to accept any risk themselves.
  • Damages

The main remedy for breach of contract in FOW projects will be liquidated damages. These tend to be the subject of significant commercial negotiations.

Setting rates for liquidated damages is more complicated where a project is being procured via a multi-contract strategy, as delays or faults caused by any single contractor could affect the entire project.

One of the most complicated areas of liability is the interface between the turbine and the floater. Unlike in bottom-fixed projects, where the main risk focus is on the turbine, in FOW the performance of the turbine may be negatively affected by the floating foundation, so the risks, liability and appropriate damages need to be clearly set out and apportioned in the contracts.

For FOW, setting rates for damages is further complicated by the novelty of the technology and difficulties with modelling damages before entering a contract.

Nevertheless, liquidated damages provisions need to protect the developer’s legitimate commercial interests, without imposing exorbitant and commercially unviable penalties on contractors.
  • Extensions of time

Various aspects of FOW, such as unexpected seabed conditions, are currently very difficult to predict, meaning that contractors are simply unwilling to accept these risks.

In these circumstances, extensions of time (EOTs) or providing for compensation for the contractor for additional costs in project contracts helps manage parties' exposure.

Financing FOW: Funding options

Once investors are comfortable with the risks, financing for wind projects tends to fall into three main categories:

1. Equity funding – available at the project development stage

At the early-to-mid-development stage of wind projects, equity financing tends to be provided by strategic players, like oil and gas companies, utilities and some contractors who are willing to cooperate to co-develop projects with local developers.

Other types of corporate equity finance providers may consider participating in the project after it has been operational for a few years and sufficiently de-risked.

However, recently there has been more interest from pure finance players in becoming involved at the development stage of projects, so this market may open up over the coming years.

2. Construction funding – available at the construction phase

Initial pilot/demonstration FOW projects have provided a useful and so far encouraging track record for investors considering coming into future projects at the construction phase.

Infrastructure funds, which are already well-represented in the bottom-fixed offshore wind market and are consequently familiar with many of the risks, have expressed a particular interest in this opportunity.

3. Financing (debt/equity) – available for existing projects

To date, no pure non-recourse finance debt has been raised for FOW projects.

However, a number of large European banks (especially French/Benelux banks) have approved FOW as a sector, so it may only be a short time before such finance is made available to projects that have gone through the full analysis and have the right mitigation measures in place.

There is also interest from strategic players in participating in projects that have already been built, primarily motivated by the desire to gain access to the IP/understanding of how FOW projects operate and perform.

Generally, the market will need to increase significantly in size, with more projects reaching financial close (i.e., the start of construction) to attract project finance.

The sector is moving in the right direction, however, and it is hoped that the risks will soon be sufficiently understood for project finance providers to put appropriate financial mitigation measures in place (such as, for example, cash sweeps and reserve accounts used in bottom-fixed projects).

Key considerations for the future of FOW
  • Supply chains

If growth of the global FOW sector accelerates as rapidly as it is predicted to do, existing supply chains will not be able to keep up with demand.

Many national governments are also imposing local content obligations on developers, which bring opportunities but also restrictions in terms of using local supply chains.

The UK’s Offshore Wind Sector Deal has a commitment to grow the UK content of offshore wind to 60%. To deliver this, UK supply chains will require significant investment.

Supply chain capacity and resilience is increasingly becoming a deciding factor in where to locate FOW projects. As the market matures, different approaches are likely to evolve, with regional hubs emerging depending on local capabilities, resources and cabotage rules.
  • Human resources

As well as helping to meet renewable energy goals, FOW is expected to generate significant economic benefits for coastal economies and communities.

While many of the skills needed for FOW exists in the bottom-fixed offshore wind sector, more people will be needed to help this industry realise its potential.

Many marine economies in Europe, particularly in the UK and Ireland, have suffered from de-industrialisation, lack of investment and 'brain drains' over the past 50 years. FOW offers opportunities to revive coastal communities, providing two-way benefits as project developers make use of local knowledge.

As well as the necessary supply chain, construction and maintenance requirements, the need for offshore wind to co-exist happily with biodiversity should create jobs in conservation and sustainable, low-impact aquaculture.
  • Core technology developments

FOW technology is still in its early stages and based on the experience of onshore and bottom-fixed offshore wind, significant improvements can be expected in design and performance.

Lessons from pilot and early commercial projects are therefore vital for unlocking future projects.

While there are estimated to be more than 100 FOW designs (mostly variations on semi-submersible, spar and TLP models), FOW is likely to move towards standardisation as the sector matures.

This will largely be driven by EPC contractors and (hopefully) investment by the major turbine suppliers, and should make commercialisation of the technology easier. However, while some standardisation is desirable, FOW technology is not expected to consolidate to the same extent as the bottom-fixed market, as much of the equipment will need to be site-specific.
  • Supporting technologies

While the core technology of FOW installations needs to evolve further, supporting technologies such as monitoring systems also need to become more sophisticated and less costly.

FOW will require full cradle-to-grave systems management tools that allow project owners to monitor the condition and performance of their materials and components from manufacture, to fabrication and installation and throughout their 'on-site' lifecycles.

As FOW projects will also be located further offshore than bottom-fixed offshore wind projects, highly accurate remote monitoring systems will need to be developed to make managing these projects viable.
  • Operations and maintenance

The process of main component replacement/routine operations and maintenance for FOW is still evolving. The nature of the technology means equipment can either be maintained in-port or offshore, but more operational experience is required to determine the most efficient and effective maintenance procedures.

From a health and safety perspective, there are clear advantages to conducting maintenance in-port, however this brings additional interface risks and project operators will need to be mindful about their selection of contractors and subcontractors.
  • Policy and regulatory frameworks

Policy and regulatory frameworks are essential to allow FOW opportunities to develop and prevent potential economic benefits from being lost or squandered due to unnecessary obstacles or inertia.

While lessons from onshore and offshore wind have shown that costs fall rapidly when technology is deployed at scale, policy objectives and regulatory checks to market forces will help ensure the focus on cost minimisation does not jeopardise the future of FOW.
  • Global potential

While the UK, Ireland and Europe are expected to be among the early leaders in FOW, the potential of the technology to be deployed in deeper waters and access better wind resources is predicted to underpin global growth in the sector.

Some of the leading FOW developments are taking place in markets where bottom-fixed offshore wind was not an option, due to the depth or nature of the seabed or the topography of the coastline.

Markets showing particular future promise for FOW include western US states like California and Oregon, South Korea and Japan. However, the challenge will be exporting power from where it is generated to markets.

This article is based on a discussion between floating offshore wind experts during an event hosted by European law firm Fieldfisher on 4 November 2021. Contributors to the discussion were Feilim O’Caoimh and Elaine Traynor, corporate partners at Fieldfisher Ireland; Sam Roch-Perks and Hugh Kelly, co-founders of Simply Blue Group; Mikael Chapel, financial director and Clément Weber, director of Green Giraffe; and Dan Kyle Spearman, associate director and global offshore floating wind lead for The Renewables Consulting Group.

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