The U.K. is putting together plans to scale its fleet of offshore wind projects from today's 10 gigawatts to 40 gigawatts by the end of the decade.

This week, Prime Minister Boris Johnson said the next renewables auction round would support twice as much capacity as the last one. Offshore wind dominated the 2019 renewables tender, taking 5.5 GW of the 5.8 GW awarded. A new £160 million ($207 million) fund was also created to support the development of new port and manufacturing facilities to underpin that 40 GW target. A separate 1 GW target for floating offshore wind was also revealed.

With costs falling quickly in recent years, other priorities now have room to breathe.

As the largest end market for offshore wind, the U.K. is a bellwether for the sector at large. So what can we learn from the new support?

1. COVID-19 shifts focus from cost to jobs

The contracts for difference (CFD) program offers a guaranteed “strike price” per megawatt-hour. If wholesale prices fall below that level, the government makes up the difference. If the wholesale price is higher, the project owner pays back the extra profits. The first CFD round in 2015 backed EDF’s Neart na Gaoithe project with a strike price of £114.39 per megawatt-hour. Fast-forward four years and the winning projects in 2019 had strike prices as low as £39.65 per megawatt-hour. That’s lower than wholesale prices are forecast to be once the projects are operational. That means they won’t cost the government anything.

The next round will also be a competitive tender, and it is very likely that, again, the winning projects won’t cost the government anything. Søren Lassen, head of global offshore wind research at Wood Mackenzie, told GTM the package of measures unveiled by the U.K. government showed that driving down cost was not the primary objective.

“A lot of the focus is on jobs. That's, of course, partly driven by COVID-19, which has really shifted the balance toward job creation,” Lassen said. The decline in costs was to some extent predictable; the natural next question for governments is how else they can add value. Local manufacturing content and local jobs are an obvious answer, one that is amplified by the economic impact of the pandemic.

2. With subsidies in the rear-view mirror, attention turns to scale

One surefire way to continue driving down costs is to continue scaling up the market. In Europe, at least, market visibility is increasing — beyond the U.K., Germany and France have also grown their offshore ambitions.

Germany revised its 2030 target from 15 to 20 GW and France from 6 to 8.75 GW. The Netherlands is targeting 11.5 GW, and Poland plans 11 GW of deployment.

And those numbers may continue rising, with the EU (which excludes the U.K.) estimating that by 2050, it could need as much as 450 GW of offshore wind to achieve its economywide net-zero ambitions.

3. Floating is happening

Floating wind projects have been deployed at pilot and demonstration scales, but the addition of a new 1 GW target for 2030 means the U.K. can now offer some certainty to developers such as Total, Shell and Equinor, which have all made plays in the floating wind arena. Trade body RenewableUK believes twice that level of deployment is possible. A CFD carve-out for floating wind has been proposed by the government, and Scotland’s seabed leasing round, which is still underway, includes zones set aside for the emerging technology.

“The announcement on floating wind is another indication that this is not all about price anymore,” said Lassen. This is especially true in Norway and the U.K., where decades' worth of marine-engineering expertise and infrastructure from the North Sea oil sector is looking to diversify. Oil services giant Wood, formerly the Wood Group, derived 96 percent of its revenue from the oil sector in 2014. That’s now down to around one-third.

4. Major supply chain investments are coming

In the U.K., big promises about local content in the offshore wind sector have been undermined by developers struggling to find competitive local alternatives.

This could change. In August, the South Korean steel giant SeAH Steel signed an agreement with the U.K. government to develop a monopile foundation facility in the country; exactly where in the U.K. has not yet been decided. Until now, foundations have frequently been outsourced to yards in China, Indonesia and the UAE, leaving British companies and trade unions frustrated. Now an Asian foundation supplier is planning to come and set up shop in Europe.

“It's been challenging to attract players across the ocean," said Lassen. "We're now starting to see movements across the world, with players from Asia looking to break into [the European] market. This is an interesting move."

The £160 million fund offers manufacturers, including turbine and blade makers, the change to supersize using subsidies. Landowners and businesses with quayside facilities in the order of 200 hectares are asked to apply on the condition that they can support 2 to 3 GW of annual production and be at least partly operational by 2023.

5. Brexit shadow diminished

The U.K. and EU are still negotiating a trade deal, and until details are released, forecasting the impacts are, at best, guesswork. That uncertainty alone casts a shadow on investment in the U.K.

With a number of offshore wind markets looking for capital, alternatives are out there for would-be investors. But the strength of the CFD and its revenue guarantee has ensured that interest in the U.K. market has remained high. The most recent Dutch tender, a zero-subsidy round, proved less popular, with just two consortiums taking part.

Lassen said Brexit hasn’t diminished Wood Mackenzie’s view on deployments by 2030.

“We've had 40 GW [forecast] for a while, and that was irrespective of Brexit. I don't see it as a deal-breaker in this sense,” he said, adding that the renewed commitment to the CFDs, including the increase in capacity on offer, will help to erode some Brexit doubts where they do exist.