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Can the North Sea become Europe’s new economic powerhouse? – The Economist – 01.01.23

The continent’s most turbulent body of water is finding fresh uses.

PICTURE A MECCANO set, but one made for gods. Blades as long as Big Ben is tall, rotors and tower sections the size of school buildings, shafts and generators so heavy they must be rotated every 20 minutes so as not to be crushed by their own weight: all these parts are strewn across an area the size of 150 football pitches. Clicked together, they form edifices rivalling the Eiffel Tower, except more useful—wind turbines to be planted somewhere in the North Sea.

Welcome to Esbjerg, the hub of Europe’s offshore-wind industry. Two-thirds of the turbines currently spinning off its coast, enough to power 40m European homes, were put together in the Danish port town of 72,000. And Esbjerg’s gods have only started tinkering. The city’s port operator plans to nearly triple capacity to handle wind projects by 2026. Local engineering firms that once catered chiefly to the fossil-fuel industry now supply the windpower industry instead.

Meta has bought 212 hectares of farmland outside Esbjerg to build a renewables-powered data centre for its social networks. Out on the sea, cables that will ferry 30% of the international data traffic into Norway are being laid down. Esbjerg’s mayor has travelled as far as Vietnam and Washington, DC to share its success story.

With a dose of strategic thinking, and a bit of luck, a constellation of Esbjergs could combine and scale up into a new North Sea economy. This would help Europe achieve its ambitious climate goals and rebalance its energy sources away from countries ruled by tyrants such as Russia’s Vladimir Putin. Its newly minted corporate champions could offer Europe’s best, and perhaps last, chance to stay globally relevant. And it could alter the continent’s political and economic balance by creating an alternative to the sputtering Franco-German engine.

The North Sea has always been economically important. Bordered by six European countries—Belgium, Britain, Denmark, Germany, the Netherlands and Norway—it is where many important shipping routes intersect. Its strong tides, which sweep nutrients to its shallow seabed, are a boon for fishermen. In the 20th century oil and gas were discovered beneath the seabed.

At their peak in the 1990s Britain and Norway, the two largest North Sea producers, together cranked out 6m barrels a day, half as much again as the United Arab Emirates does today. One Scottish field, Brent, lent its name to the global price benchmark. Now as that bounty runs out—and demand for what remains dwindles because of growing concerns about climate change—the turbulent body of water is finding lucrative new uses.

Spin doctrine

The biggest bet is on a resource of which the sea has an infinite amount—awful weather. With average wind speeds of ten metres per second, the basin is one of the gustiest in the world. The day your correspondent visited Esbjerg speeds were twice that, enough to push the wholesale price of electricity down to nearly zero. The North Sea floor is mostly soft, which makes it easier to affix turbines to the seabed (the floating kind have yet to be deployed at scale anywhere in the world).

It is also typically no more than 90 metres deep, which allows wind farms to be placed farther away from the coast, where winds are more consistent. Ed Northam of Macquarie Group, an investment firm with stakes in 40% of all British offshore wind farms in operation, says his offshore turbines work at up to 60% of capacity, compared with the 30-40% that is typical onshore.

In 2022 North Sea countries auctioned off 25 gigawatts (GW) in capacity, making it the busiest year by far. Nearly 30GW-worth of tenders have already been scheduled for the next three years. Yearly new connections are expected to grow from under 4GW today to more than 10GW by the late 2020s. At a meeting in Esbjerg in May the European Commission and four countries bordering the North Sea agreed to install 150GW of windpower by 2050, five times Europe’s and three times the world’s current total.

In September this group and another five countries raised the number to 260GW, equivalent to 24,000 of today’s largest turbines.

This ambition is made possible by wind’s version of Moore’s law, which described the exponential rise in computing power. Three decades ago the world’s first offshore wind farm—Vindeby in Denmark, made up of 11 turbines—had a total capacity of five megawatts (MW). Today a single turbine can generate 14MW, and one farm may contain more than 100 of them. More robust cables and transformers at sea to convert windpower from alternating into direct current, which can travel over long distances without big losses, enable more electricity to be generated farther away.

The result is that several wind farms being installed now surpass 1GW in capacity, the typical output of a nuclear plant. The Dogger Bank wind farm, located between 130km and 200km off the British coast and due to start operating in the summer of 2023, will clock in at a record 3.6GW at full capacity in 2026. Economies of scale are driving down costs, making offshore wind competitive with other sources of power. In July Britain awarded contracts to five projects, including Dogger Bank, at a price of £37 ($44) per megawatt-hour—less than a sixth of the country’s wholesale electricity price in December.

The awful weather is not always a boon: its vagaries can also stress the grid. Helpfully, technology and falling costs are allowing windpower operators to combat the elements. One way to do this is with more interconnections, first between the farms and land—today most wind farms have one link to the shore, which is inefficient—then among the farms themselves. Half of the 3GW to be tendered by Norway will have the option to create links to more countries. Phil Sandy of National Grid, which runs Britain’s power infrastructure, predicts a future of complex undersea grids similar to that on land.

Another way to manage the variability of windpower is to use it to split water molecules to produce “green” fuels, such as hydrogen and ammonia. In May the European Commission and heavy-industry bosses pledged a ten-fold increase of EU manufacturing capacity for electrolysers, which do the splitting, by 2025. This would allow it to produce 10m tonnes of green fuels by 2030. The commission has also proposed a “hydrogen bank”, capitalised with €3bn ($3.2bn), to help finance the projects.

Investors are giddy. In August Copenhagen Infrastructure Partners (CIP), a private-equity firm, said it had raised €3bn for a fund that will invest solely in hydrogen assets. A dozen projects have been announced in Europe; the three largest together amount to 20GW of green power. Topsoe, a Danish firm that provides technology for such ventures, says its orders add up to 86GW.

Eventually the North Sea’s power system could take the form of an archipelago of “energy islands” that host wind-farm repair staff, aggregate electricity and produce hydrogen in bulk, to be transported onshore by ship or pipeline. As many as ten such schemes are being considered, according to SINTEF, a research firm. North Sea Energy Island, an artificial atoll 100km off the Danish coast, is due to be tendered in 2023. It will serve as a hub for ten surrounding wind farms, with links to neighbouring countries.

One bidder, a joint venture between Orsted, a Danish offshore wind developer that is the world’s largest, and ATP, a local $150bn pension fund, envisages a modular design, with components made onshore and assembled at sea. “We expect it to still be functional in 100 years’ time,” says Brendan Bradley of Arup, an engineering firm that is advising the bid. Thomas Dalsgaard of CIP, which is part of a rival consortium, reckons that producing green fuels offshore will not only help reduce pressure on grids but also save money: hydrogen pipelines are one-fifth the cost of high-capacity power-transmission lines.

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Can the North Sea become Europe’s new economic powerhouse – The Economist – 01.01.23
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