Charting the Course: Establishing Baselines for Offshore Wind Turbine R&D activity

The offshore wind industry is characterised by continuous innovation, particularly in turbine technology. To mitigate risks associated with introducing new components, manufacturers typically follow a strategy of bringing offshore wind turbines to market through step changes at the component level. For example, a new generator with a higher power rating usually precedes an increase in rotor size. However, the pace of these step changes has been accelerating in recent years to meet the growing market demand.  

When a turbine manufacturer launches an entirely new platform, rather than just upgrading a component, the R&D expenses involved are significantly greater than those for incremental performance improvements. A prime illustration of this is the introduction of GE's Haliade X platform, after their acquisition of Alstom.  

In 2023, Pelergy undertook an analysis of R&D activity within offshore wind turbine manufacturers, alongside industry partners LumenEE and POSET-renew. Figure 1 presents our analysis of publicly available R&D expenditure from major European turbine manufacturers, derived from annual reports and other online data sources. This analysis is charted against the average installed power rating and the date of prototype introduction for major European offshore wind turbine platforms. It's important to note that the data encompasses both global onshore and offshore wind technology, as turbine manufacturers generally do not provide a breakdown at the technology or geographic level.

Figure 1 Publicly listed European turbine manufacturer R&D spend, charted against average installed power rating, alongside date of prototype introduction for major European offshore wind turbine platforms (Size of bubble represents rotor diameter)

In 2022, the reported annual R&D expenses for the analysed turbine manufacturers exceeded £1 billion. Offshore wind turbine R&D is typically more resource-intensive than onshore wind R&D. This is largely attributed to the relative immaturity of the offshore wind market, resulting in lower total global revenues, and the complex nature of developing technologies capable of withstanding harsh offshore environments. The analysis focused on the main European offshore wind players.

Through the analysis, Pelergy confirmed that R&D expenditure is increasing over time, and the chart visually demonstrates the correlation between step changes in turbine sizes and increased R&D expenses. As the industry matures, the time between major platform and component releases has been decreasing, with R&D expenses expanding in line with this trend. This trend of faster releases of new platforms is also observed in the onshore wind industry, further contributing to the upward pressure on turbine manufacturer R&D expenses.

However, the deficit positions of turbine manufacturers in the years running up to 2023 indicate that they are facing challenges in securing returns on their investments in offshore wind turbine R&D. This situation may be attributed to factors such as changing market conditions, volatile materials costs, or the accelerating demand for larger turbine sizes. The considerable lag time between R&D expenditure and the realisation of ultimate commercial profit, due to the long lead time of turbine and project development, may also be a contributing factor to the recent decline in returns.

Despite the trend of increasing new product development and rising company budgets, R&D intensity (R&D expenses divided by turnover) is decreasing over time among major European listed manufacturers (as shown in Figure 2, below). This decrease is likely due to rapidly increasing revenues in recent years, particularly from the onshore wind industry.

Figure 2 R&D Intensity of major European wind turbine manufacturers, calculated from publicly available data

Furthermore, annual reports suggested that offshore wind R&D is more resource-intensive, relative to revenue, than onshore wind R&D. Data from when Vestas and Mitsubishi Heavy Industries (MHI) Vestas reported separately indicates that MHI Vestas had a significantly higher R&D intensity for its offshore product compared to Vestas, which focused on onshore wind turbine products. This difference might however be influenced by the structure of the joint venture and how offshore revenue and internal cost centres for R&D were handled between the companies.

It was anticipated that mergers would drive down R&D intensity, as revenue increases and duplicate internal resources are eliminated. However, this effect was not immediately apparent in the data analysis, except in the case of Nordex, which exited the offshore wind market in 2012.

In conclusion, tracking R&D expenditure and intensity within the offshore wind turbine manufacturing sector is crucial for understanding the industry's innovation trajectory, profitability, and response to market dynamics.

Pelergy continues to dig deeper into this field and welcomes engagement on measuring and benchmarking impact and innovation activity.

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