The energy transition is setting ports on a greener route

The estimated price tag for getting European ports shipshape by 2034 is €80 billion, according to an April 2024 report by the European Sea Ports Organisation. This includes all necessary investments by port managing bodies, ranging from improvement of terminals to digital infrastructure, roads and rail connections. Crucially, this number does not include the potentially larger private investments in, for example, warehouses and bunker facilities by the ports’ tenants.

Of this, no less than €20 billion of investments will concern energy transition-related operations. Some of the nearly 30 percent dedicated to the expansion of port basins, quays or terminals will be energy transition-related too. There is no separating the futureproofing of ports from the energy transition.

For offshore wind, ports present a bottleneck, as the ever-larger turbines are ideally manufactured and stored close to the point of embarkation. Furthermore, the gigantic barges for floating offshore wind must be built at a port, and the turbines installed on-site in the port rather than at sea.

Each technological change has an element of the chicken and the egg conundrum: before floating offshore wind can scale, someone must facilitate quay-side construction and the assembly of complete floating-barge-and-turbine units; before dual-engine vessels can move beyond being a gimmick, there must be ready access to alternative fuels at either end of the shipping routes; if electric ferries and smaller vessels are to be charged, there must be sufficient grid and power supply to support this.

Embracing the energy transition is a global undertaking, but it is perhaps particularly pertinent to ports in the developed world, as the CEO of privately owned Associated British
Ports, Henrik Lundgaard Pedersen, explains.

“We are in a mature market in terms of import and export of physical goods, because we are not an emerging economy,” he says. “So the volume growth in the traditional sectors will be subdued… Then, all of a sudden, the ports have that new commercial opportunity in the green energy transition. Not only ABP, but all the port groups in the UK see that as a big commercial opportunity.”

While some early private movers have already placed their chips, development money is and will be needed, as well as solid institutional backing for the world’s ports as they go on a journey of their own.

Banking on offshore

Offshore wind’s demand for adequate port facilities may not be all that obvious. After all, offshore turbines have found their place on shallow seabeds for a couple of decades without making too much of a fuss onshore.

But this will change – most significantly with regard to floating offshore wind, where the underpinning structures can measure 54x54x16 metres for a concrete barge, while triangular steel structures may measure up to 100 metres between each 25-metre-tall column to support a 15MW turbine.

With a turbine on top, the final floating structures will be as tall as the Eiffel Tower and must then be towed to deeper seas.

“The port infrastructure in the UK, as well as on the European continent, has a hard time keeping up with the demand from the offshore wind industry just because it is going so fast”

Henrik Lundgaard Pedersen
Associated British Ports

In the US, the offshore build-out – and the associated development of port infrastructure – is in its infancy, presenting opportunities for investors.

“There’s no floating offshore wind-ready port today [in California],” says Bill Rogers, managing director, global head of sustainable energies at CPP Investments, an investor in ports. “But there are a handful of ports along the coast that have the land and capabilities, and it’s a question of working with them.”

The obvious gap has already attracted private capital. “When we look at the European market, one thing that becomes clear quickly is how important supportive infrastructure and the mosaic of things that help get turbines installed in the ocean are,” says Pat Arnold, a partner and co-founder of Homecoming Capital, a San Francisco-based private equity firm that has just completed a $50 million deal with US-based Clean Energy Terminals to ready US ports for offshore wind deployment. “We saw ports, particularly given the role they have in Europe, as important to enable that transition. That is our macro thesis.”

“From an investment rationale perspective, these ports are going to be important to unlocking the deployment of turbines,” he adds.

BloombergNEF forecasts that the US will deploy an average of 2.4GW of offshore capacity from 2026 to 2030 a year and 5.4GW of average capacity in the decade after that. From 2034, an average of 1.2GW a year of this will be floating wind.

One example of a European port preparing for floating offshore is ABP-owned Port Talbot in Wales, which is being transformed – with government support – into a hub for the manufacture and assembly of floating offshore wind structures meant for the Celtic Sea. ABP is owned by CPP Investments, OMERS, GIC, Wren House and Hermes Infrastructure.

“Floating wind is a massive business opportunity for the UK, and in Wales in particular,” says Pedersen. “And the port infrastructure in the UK, as well as on the European continent, has a hard time keeping up with the demand from the offshore wind industry just because it is going so fast.”

This view is backed up by the UK Infrastructure Bank’s head of banking and investments, Ian Brown: “Essentially, none of the ports in this country yet, and actually very few in Europe, are set up to enable the assembly of these offshore wind floating platforms.”

Situated by the North Sea, Scotland’s Ardersier Port is embracing the opportunity. It has had a partnership agreement with BW Ideol, a Kerogen Capital-supported manufacturer of concrete floaters, for a couple of years, and Quantum Energy Partners announced a £300 million ($380 million; €355 million) investment in April last year.

Yet, more capex was needed and UKIB stepped in. The finance, according to Brown, will help “to clear the site and then to start getting the quay strengthened, to dredge the channels and to put the cranes in place and all the other criteria you need to be able to service these wind farms that aren’t there yet”.

Better together

Across the North Sea on the Norwegian west coast, Ancala has invested in the Fjord Base port hoping to benefit from the lack of offshore wind-supporting ports in the region. “We are closely monitoring the Norwegian offshore wind opportunity as it develops,” says Ancala partner Tim Power. “We are also actively participating in the UK market where we see a substantial project pipeline evolving but limited port capacity. This creates opportunities for ports and logistics owners on both sides of the continental shelf.”

In general, managing bodies that operate multiple ports have been on the rise for the past decade, extending to cross-border arrangements as in the Copenhagen Malmö Port. As the scale of the challenge to ports increases, the incentive to partner only grows.

“We think alliances are really important in port logistics for multi-faceted industries like offshore wind, as there are quite a lot of bespoke solutions required”

Tim Power
Ancala

“We think alliances are really important in port logistics for multi-faceted industries like offshore wind, as there are quite a lot of bespoke solutions required,” says Power. “We’re certainly having a lot of discussions with ports, logistics providers, shipping and crane companies, so that we can go to a customer with a pitch that says, ‘We’ll take this on for you. We can bring together a broader alliance to deliver all the scoping requirements.”

In Australia, the first offshore wind farm is yet to materialise, but as and when the Australian continental shelf is ready to host, GeelongPort, less than 100km southwest of Melbourne, is well-positioned to support the development.

Stonepeak acquired GeelongPort in 2023 alongside Spirit Super, and according to senior managing director and co-head of energy Anthony Borreca, the port is already an old hand at servicing the wind industry, as the facility has handled more than 500,000 tonnes of turbine equipment for one of the largest onshore wind farms in Australia.

Borreca is, however, worried about the consistency of the offshore wind sector’s need. “Ports want to support long-term, recurring logistics movements – so accommodating one-to-three-year, very intensive but otherwise short construction cycles for offshore wind doesn’t really align with that. Once the offshore wind farm is built, generally the recurring needs are quite modest.” Indeed, the estimate for yearly offshore wind capacity deployment in Australia is only 500MW beginning in 2032, according to BloombergNEF.

Making it work will therefore take support from governments and developer customers to ensure the port owner is compensated for building and transitioning part of its asset base towards this use, according to Borreca.

Clustering large offshore developments around one port and spreading the development costs among multiple wind farms might be another way around this issue, and this idea finds support from IFM Investors director, asset management, Peter Hannam, who also sits on the board of IFM portfolio company NSW Ports. “There needs to be a high level of coordination across government so that if a port were to invest in significant offshore wind infrastructure, especially creating that quay line [the length required to accommodate equipment and ships used for offshore wind], they have the certainty that multiple developers will be using it, potentially over multiple decades, to justify that investment.”

Hannam notes that multiple offshore wind zones off Australia’s east coast are being developed by separate entities, making it trickier for any one port to commit to reconfiguring itself to support the sector – particularly for floating wind farms. That floating units can be towed for long distances also raises the prospect of competition between NSW Ports’ Port Kembla and another facility to become the de facto hub for Australia’s offshore wind sector.

“You don’t necessarily want to have three or four ports servicing the sector, or it could become wildly inefficient,” he says.

Green corridors

Green shipping corridors will be crucial for the wider take-up of low-carbon fuels such as green electricity, e-ammonia and green, blue or natural hydrogen, and e- or bio-methanol/methane.

One such corridor is Oslo to Rotterdam, with hydrogen available at either end, and there are ambitions for electricity provisions to link the eight Irish and English private ports. “There’s no point in having electric ferries in one destination if you don’t have them on the other side. So we work with Peel Ports to create these green corridors via interconnecting the dots in the Irish Sea,” says NatPower Marine’s CEO, Stefano Sommadossi.

Creating those networks is indeed the first step, no matter the fuel. However, the development of green fuels for the shipping industry in emerging markets is further away than in many developed markets.

“Fuel corridors are not ready yet, especially on the green side. You may have ‘dirty’ methanol or ammonia available, but that doesn’t really help in terms of decarbonisation,” says Andre Van Hoeck, principal investment officer at the International Finance Corporation. “It will take some time for those fuels to be available in a ‘green’ form. But that could present opportunities in some of our markets for the production of green fuels.”

There are two aspects to consider regarding ports and green fuels: the ability to bunker and the provision of the fuels. Not all ports are ideally located for production. A report in April from the Global Maritime Forum finds that the ports of Singapore and Busan would see high demand for green fuels, but have few opportunities for local production. In contrast, Houston and Algeciras in Spain stand out as ideal first movers in that local production of hydrogen, ammonia and e-methanol would be cheap and the demand for such fuels high at these locations.

If normal shipping through the Suez Canal returns, Moroccan ports could also benefit, as renewables-based fuels would be easy and cheap to come by.

“We have a greenfield partnership project in Morocco right now, where we will handle the ports and the logistics solutions, while others will handle the renewables and the hydrogen and e-ammonia production,” says AP Møller Capital’s CEO, Kim Fejfer. “So we will run the port that will facilitate the transport of these products.”

As the cost of transporting the fuels will be comparatively low, locations such as the Pilbara in Australia and Corpus Christi, Texas, could be production and subsequently export facilities of the future’s fossil-free fuels. Already, Saudi Arabia’s PIF has been a notable early believer in this kind of export, which will involve more than just local ports.

“At Immingham Green Energy Terminal [on the UK’s east coast], we are working with Air Products from the US that are invested in the Neom green ammonia project in Saudi Arabia. That green ammonia will be shipped up to Europe, that could go into Germany, that could go into the Netherlands, it could go into Spain,” says ABP’s Pedersen, neatly illustrating how the handling and transportation of green fuels will matter as much as the bunkering and provision of them.

And there is the very nascent CO2 economy to consider too; Pedersen explains how ABP is involved in a carbon capture, utilisation and storage project with Harbour Energy and BP where CO2 from the southern part of England will be pooled together with locally sequestered CO2 from the Humber region’s heavy industry, and then packed out to the empty Viking gas field under the North Sea.

Keeping stakeholders on-side

Whether port owners and operators can successfully liaise with their stakeholders – including their shipping company customers, politicians, regulators and local communities – will be a deciding factor in allowing ports to successfully navigate the energy transition.

Andrew Sellick – principal of sustainability and infrastructure at QIC, an investor in the Port of Melbourne and the Port of Brisbane, which are Australia’s largest container port by volume and the largest multi-cargo port, respectively – underlines the importance of working closely with customers and end users, effectively the shipping companies.

“Ports aren’t going to dictate fuel use, for example, and they will have to be flexible and strategic enough to respond to the needs of the shipping companies, trucking agents and logistics providers that house themselves at a port,” he says. “Strong stakeholder connections are really fundamental to success.”

Stonepeak’s Borreca says each port will have to decide on where its focus lies. “To remain an attractive investment, ports need to grow, and they need to provide a valuable service to their customers and communities. If you have a port that is largely focused on coal or crude oil transportation, for example, I think you need a plan to ensure you can continue growing and serving your customers as those fuels decline.

“Every port does not need to become a green energy hub, and not every port is involved in fossil fuel logistics. It doesn’t mean that every port that doesn’t become an energy hub will become less investable by any stretch – but I think it creates a lot of really attractive investment opportunities for those ports that have the right confluence of factors.”

IFM’s Hannam also advocates for keeping an eye on the ball: “The ultimate question as an investor is: what is the commercial model? If we are deploying capex in sustainable fuels, for example, how do we get a commercial return on that investment? What is our customer’s propensity to pay in order to decarbonise, and how do we minimise costs by doing that as efficiently as possible, because those costs will ultimately be passed through?”

In an echo of Borreca’s comments, Hannam positions this capital outlay in terms of how a port can continue to grow, and thus maintain its value and investability. “If you take the view that, ultimately, carbon-based fuels will diminish, what is the replacement trade for that, and how do we pursue those replacement trades so that we maintain and grow revenue?”

Future-proofing ports

Even when neither offshore wind nor green corridors are planned, the energy transition is front of mind. “We are still at an early stage of this journey, but it’s important to future-proof all decisions because this is going to be extremely important when we exit our investment,” says Christian Roy, senior investment director at Amber Infrastructure, which is invested in the Bulgarian Port Burgas.

“We have obtained EU subsidies to build a new state-of-the-art berth dedicated to container activities to complement the intermodal solutions we have developed to provide a low-emission alternative to truck transport, allowing goods and containers to arrive at the port and then be transported on an electrified rail line straight to the capital city of Sofia,” Roy says.

Though Port Burgas has not yet invested in the transition to greener fuels, it is only a matter of time. “The shipping industry is moving in this direction, so the port industry will need to be ready,” adds Roy.

Decarbonising the port operations is important too, he says. “We are improving energy efficiency and upgrading equipment. We are installing solar panels on the rooftop of the facilities. We are buying electric vehicles to move around the site and acquiring new cranes that are either electrified or semi-electrified.”

And this is a near-universal undertaking. In Gabon and the Ivory Coast, AP Møller Capital’s port operations become greener by the day, explains Fejfer: “It’s rooftop solar; it’s electrification of port equipment, the cranes, the straddle carriers and the trucks used in the operation.”

But to move the dial, this electrification demands access to green energy, which is another thing often lacking in emerging markets, says IFC’s Van Hoeck. “In many of the countries we operate in, the grid is relatively dirty. This makes it more challenging for them to achieve CO2 reductions.”

Good intentions alone won’t solve the basic problems of grid and availability of green energy. But it seems clear that the world’s ports are eager to do their bit and feel assured that they have a vital role to play in the energy transition.

This is one journey with a clear destination.