Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How Offshore Wind Is Reshaping European Energy Trade
Transcript
- Lucas: So the euro is basically flat against the dollar right now — one point one four. But the trade-weighted dollar index has eased a bit, down to 120.7 from 121.15 a few days ago. That small shift matters a lot for one corner of global trade that doesn't get much attention: electricity. Luna: Cross-border electricity trade? I know Europe has been doing it for decades, but you're saying the currency move actually changes the math? Lucas: Exactly. Because when a Danish wind farm sells power to Germany, the contract is typically denominated in euros. But the costs — the turbines, the maintenance, the financing — they're often in dollars. So a weaker dollar relative to the euro means thinner margins for European exporters. But right now, with the dollar off its peak, the squeeze is easing. Luna: And that's happening just as Europe is pouring money into offshore wind. I saw Denmark's Energinet just announced a new interconnector to the Netherlands. Lucas: Right. And that's the story I want to drill into today. Offshore wind isn't just a climate play anymore. It's reshaping how European countries trade electricity with each other — and it's turning the North Sea into something akin to a new energy grid. Denmark now exports over 60 percent of its wind power. Germany is planning to double its offshore capacity by 2030. And Norway is pivoting from being a gas exporter to a hydrogen exporter. Luna: That's a big shift. Norway's gas has been a staple for Europe for decades. Hydrogen is a different beast entirely — harder to transport, needs new infrastructure. Lucas: Exactly. And this is where the business angle gets interesting. The European Commission approved a new framework last month for cross-border hydrogen contracts, and Norway is already signing pilot supply deals with German industrial buyers. The idea is to use offshore wind to produce green hydrogen, then pipe it south. It's essentially building a new trade route. Luna: So the wind isn't just generating electrons — it's generating a whole new export industry. What does that do to the economics of existing power purchase agreements? Lucas: That's the question. Traditional PPAs for offshore wind were usually 10 to 15 years, fixed price, with the offtaker taking the volume risk. But now, with more interconnectors and more cross-border flows, we're seeing index-linked contracts tied to day-ahead prices in multiple markets. A wind farm in the Baltic can sell into Poland one hour, Sweden the next, depending on price signals. It's basically arbitrage on a national scale. Luna: But that adds complexity. Developers need to hedge currency risk, basis risk between markets — it's not just building a turbine anymore. Lucas: No, and that's why the investment banks are piling in. I was looking at some data from BNEF — project finance for offshore wind hit 38 billion euros globally last year, and about two-thirds of that was in Europe. The syndicated loan market is funding these multi-country interconnectors. And the returns are being juiced by the currency environment. Luna: One thing that strikes me is how this shifts geopolitical leverage. Denmark and Norway suddenly become critical energy suppliers in a way they weren't before. It's not just oil and gas anymore. Lucas: Absolutely. And that's part of the reason the UK is racing to build more offshore wind too — it's an energy security play. Britain already has the largest installed offshore wind capacity in the world, but a lot of that powers domestic grid. Now they're building interconnectors to France, Belgium, Norway. The North Sea is turning into a kind of renewable energy hub. Luna: It's almost like a new version of the European Coal and Steel Community, but for wind. Lucas: That's a good parallel. The original European project was about pooling coal and steel to make war unthinkable. This is about pooling renewable power to make energy interdependence the norm. And the business implications are huge — utilities, construction firms, cable manufacturers, even data centres are all making location decisions based on access to cheap offshore wind. Luna: And quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many episodes. If these conversations have moved your work forward in some small way, that's the only reason we're able to keep them ad-free. Lucas: Yeah, it's a small group, but it's the whole engine. We don't run ads, so listener support keeps the lights on. No pressure, just if it's useful. Luna: Alright, back to the wind. So where does the US fit into this? Because the Inflation Reduction Act had offshore leasing provisions, but we're still way behind Europe. Lucas: We are. The US has only about 50 megawatts of offshore wind installed — versus Europe's 30 gigawatts. But the leasing pipeline is growing. The Biden administration approved seven new lease areas off the Atlantic coast last year. The challenge is that US projects are typically larger, but take longer to permit. And the Jones Act makes installation more expensive because you need us flagged vessels. Luna: So European developers are looking at the US as a growth market, but the cost structure is different. Lucas: Exactly. Some European majors like Orsted and Iberdrola are already active in US waters. They're bringing experience from the North Sea, but they have to adapt to a different regulatory and supply chain environment. Meanwhile, European domestic projects are getting cheaper — levelized cost of energy for offshore wind has fallen about 60 percent since 2015. Luna: So the trade flow isn't just electricity — it's also expertise, capital, and technology moving across the Atlantic. Lucas: Right. And that's where the currency story ties back. With the dollar still strong historically, European developers have an incentive to invest in dollar-denominated projects because their costs are in euros. So the currency environment is actually accelerating technology transfer. Luna: Interesting. So if the dollar weakens further, that could slow that investment. Lucas: It could. But the broader trend is hard to reverse. Offshore wind is becoming a core part of the global energy mix. I was looking at the IEA's latest projections — they expect offshore wind capacity to increase fivefold by 2035, with Asia Pacific growing fastest. But Europe remains the hub for innovation and financing. Luna: And for trade. The electricity grid is becoming a marketplace, not just a utility. Lucas: Exactly. And one last number that stuck with me: the European Network of Transmission System Operators projects that by 2030, cross-border electricity flows within Europe will be 30 percent higher than today. That's the equivalent of adding a hundred new interconnectors. And most of that new capacity is being built to accommodate offshore wind. Luna: So the physical infrastructure is being rewired, and the financial infrastructure is following. It's a pretty profound transformation. Lucas: It is. And it's happening quietly, without the drama of trade wars or tariff announcements. But for anyone in international business, it's one of the most consequential shifts under way right now. Luna: I wonder if we'll look back in ten years and see this as the moment the energy trade map was redrawn. Lucas: I think we will. And we'll be able to say we saw it happening — one interconnector at a time.