Calls are growing from business leaders and politicians for the Norwegian government to come up with a firm policy framework to promote accelerated investments in floating wind and other renewables to rescue the country’s ailing contracting sector amid an oil and gas market crash induced by the coronavirus crisis.

The recent slump in oil prices to as low as $20 for Brent crude has highlighted the need for the country’s key energy sector to have another leg to stand on as field investments are slashed in the current downturn.

Research firm Rystad Energy has predicted a wave of bankruptcies among oilfield service contractors that are already laying off hundreds of workers.

Rystad forecasts annual investments in the country’s oil and gas industry could be halved to around Nkr74 billion ($7.2 billion) by 2022, with platform construction, engineering and subsea set to be hardest hit.

Polarised debate

Proposed tax changes to stimulate field investments have polarised the political debate, with many arguing the government should instead be focusing its efforts on financial and regulatory measures to support efforts to diversify into renewables.

In particular, development of floating wind is seen as a major business opportunity where the industry could gain a global competitive edge by developing technology to electrify offshore platforms with renewable power to cut carbon dioxide emissions.

However, the government so far has failed to deliver a concrete plan for expansion in renewables, putting Norway at a disadvantage to European Union member countries such as France and Spain, which have filed national energy and climate plans (NECP) to cut CO₂ emissions as part of the EU’s so-called Green Deal, according to industry body WindEurope’s chief executive Giles Dickson.

Dickson says these plans “serve as investment brochures to provide clarity and visibility for investors about the size of the market in each country”.

France, which has pledged to auction 750 megawatts of floating wind by 2022 under its NECP, “is accelerating its floating wind expansion and may beat Norway to development of the first large-scale floating wind farm”, he says.

“The UK is also very interested in floating wind in Scotland, and Spain has issued a draft government strategy on offshore wind, including floating, so Norway has to move quickly to benefit from the industrial opportunity and possibility of technological leadership in floating wind.”

By contrast, “there is no defined target for wind expansion in Norway, but only a bottom-up, project-by-project approach that can only take you so far”, Dickson says.

“We are calling on the government to set a target for development and expansion of offshore wind, clarity and visibility on how to support capacity expansion and to put in place a revenue stabilisation mechanism to support the necessary investments in the short to medium term.”

Such a mechanism, already in place in the UK, Poland, France and Denmark, ensures the wind farm developer is guaranteed a fixed electricity price and is compensated by the government if the market price falls below this level.

If the market price is above the fixed level, the operator repays the difference to the government.

This provides long-term revenue clarity for banks providing loans for capex-heavy wind projects that are mostly debt-financed, thereby reducing financing costs, and is a relatively low-cost method for a government to promote wind investments, according to Dickson.

Concession areas

The Norwegian government also needs to open concession areas and run auctions for offshore wind, he says.

In particular, the industry is calling for the opening of the Utsira North area for floating wind and southern North Sea 2 zone for both fixed and floating wind.

Dickson says both have “significant potential”, with around 2 gigawatts of capacity in Utsira North alone.

An industry group including the Norwegian Shipowners’ Association and research body Sintef has demanded in a letter to the government that licensing and framework conditions for full-scale floating wind projects with capacity of at least 500 MW in each area should be clarified by the summer of 2020 ready for licensing this year.

The government’s efforts in this area have been largely piecemeal to date, as it relies on CO₂ taxes and the European emissions trading system to provide incentives for oil companies to cut emissions, handing the initiative for renewables investments to the private sector.

Norway has provided funding for renewables research and development, including a sizeable grant from state climate agency Enova for Equinor’s Hywind Tampen floating wind scheme, as part of its Paris Agreement commitment to cut emissions.

However, parliament member Kari Elisabeth Kaski of the Socialist Left party believes the government has been dragging its heels in getting both offshore wind and carbon capture, utilisation and storage projects off the ground.

A majority in parliament recently called for an assessment and financing model for the development of floating wind projects in the 2021 budget at the latest.

Kaski characterises tax relief for oil and gas companies as effectively a “regressive subsidy for a sunset industry when we should be making policy choices to invest in new industries” such as floating wind.

Kaski wants to see subsidies or direct public-sector financing to advance renewables projects and accelerate the energy transition.

Large-scale spending

This echoes a call from International Energy Agency executive director Fatih Birol for “large-scale” spending on clean energy technologies including wind, solar, green hydrogen and carbon capture and storage to be factored into government stimulus packages.

Aker ASA chief executive Oyvind Eriksen is a strong industry advocate for floating wind but says “there have been more words than action” from the Conservative-led administration and that “impatience among the industry and the authorities over government inaction on this issue has increased” during the coronavirus crisis.

“Aker believes the petroleum regulatory and tax regime that has functioned well by promoting technological development, businesses and jobs can easily be adapted to stimulate the offshore wind sector to give actors commercial predictability,” Eriksen says.

“These conditions can provide the basis for a new industrial adventure in Norway and now is the time to seize this opportunity.”

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