Wärtsilä focuses on the marine and energy markets with products, solutions, and services. Our target markets are sensitive to business cycles. However, this is offset by the somewhat different business cycles in the various market segments. Wärtsilä’s manufacturing model brings flexibility to both manufacturing and cost structure through outsourcing and supports profitability independently of the business cycle.
Decarbonisation and digitalisation transforming marine operations
The transition towards decarbonised operations is of paramount importance to the maritime industry, and stricter regulations on ship emissions are expected to come into force worldwide. Over the coming years, industry players must work together to develop economically viable options that meet the International Maritime Organisation’s (IMO) emission targets. The IMO aims to reduce the average carbon dioxide emissions of maritime transport operations and to achieve zero greenhouse gas emissions by or around 2050. Furthermore, the EU is set to include shipping in its emissions trading scheme, while green finance has gained traction with increased attention on green bonds and sustainability linked loans.
Vessel owners must embrace changes in four areas for the transition towards decarbonisation to succeed:
The adoption of alternative fuels is key to the achievement of GHG targets. Significant investments have been made in zero-carbon fuels, such as green ammonia and hydrogen. However, LNG remains the most well-developed alternative. The abatement of local pollutants is also a key focus area, where the global sulphur cap set by the IMO came into force at the beginning of 2020. This means that ships have either to use low-sulphur fuel or install scrubbers.
Significant leaps in energy efficiency are also possible through the application of innovative technologies, both in newbuild and retrofit projects. These include hybrid systems, hull air lubrication, rotor sails, as well as advanced rudder and propeller designs. The drivers for the implementation of new solutions are balanced between the common effort to reduce emissions and the potential for lowering operating costs. In the context of digitalisation, fleet optimisation solutions are increasingly being acknowledged as central to the global requirement for reducing operating costs, while complying with environmental ambitions. New digital applications and cloud-based remote solutions are gaining traction, while ship-to-port communications, as well as document and data exchange, are increasingly being handled electronically rather than via personal interaction. In parallel, different degrees of autonomous shipping are being explored as a key means for boosting fleet efficiency, safety, environmental sustainability, and overall operational performance.
Marine markets in 2023
In 2023, the world
economy faced the continued challenges of high inflation and lower growth
prospects. GDP growth slowed down as a result of stricter financial policies
and weaker confidence among businesses and consumers. The demand for ship
capacity, however, was supported by an increase in seaborne trade volumes while
being further amplified by the longer shipping distances resulting from
political conflicts and disruptions at key waterways. The recovery in passenger
traffic volumes continued, and the demand particularly for cruise vacations
remained strong.
Despite
capacity limitations at the main shipyards in South Korea and China and further
increases in newbuild prices, the investment appetite for new ships remained
healthy. Investments were mostly driven by increasing demand for ship capacity,
decarbonisation and a low orderbook, especially in the bulk carrier and tanker
segments. Investments in new ships increased with 1,977 contracts registered in
the review period January-December, compared to the 1,538 contracts recorded in
January-December of 2022.
The
uptake of alternative fuels remained more limited with 450 orders reported in
2023, representing 23% (30%) of all contracted vessels and 43% (60%) of vessel
capacity, mostly because of the changed mix of contracted vessels.
The
continued increase in yard capacity especially in China and South Korea helps
to remove constraints from newbuild ordering across vessel segments as
availability of slots improves and increases in newbuild prices likely will
decelerate.
The
shipping industry continued to call for more clarity and action on how to
reduce the industry’s carbon footprint. In response, the International Maritime
Organisation (IMO) in July updated its strategy on cutting greenhouse gas
emissions from ships, with the more stringent goal of reaching net zero
emissions by or around 2050. As a result, stakeholders are more aligned
globally on the requirements and investments needed to decarbonise the
industry.
In
the cruise sector, the market sentiment remained positive due to the continued
solid growth in demand for cruises. However, the demand for new vessel capacity
remained limited as cruise lines focused on managing the current order book and
deleveraging their business. The demand for service was supported by the
continued growth in active fleet capacity, as well as interest in efficiency
improvements to comply with regulations and to mitigate cost inflation.
In
the ferry sector, despite positive developments, notably in passenger traffic
volumes, newbuild activity remained limited and was driven by fleet
replacement. This resulted from the financial challenges faced by operators
during recent years, and excess capacity in certain markets. The demand for
service was supported by more vessel capacity being activated to cater for the
increased passenger and cargo traffic volumes.
In
the offshore sector, the supportive energy prices continued to increase demand
for drilling unit and support vessel capacity, resulting in further fleet
reactivations and interest in newbuild units. However, the contracting of more
complex and expensive drilling units remained limited due to high prices, the
cost of finance, the lack of yard capacity, and limited interest in building
offshore assets. The demand for offshore wind vessel capacity was supported by
the continued growth in wind farm capacity. Despite inflationary pressure, the
long-term outlook remains positive with the final investment decisions (FID)
for offshore wind projects for the full year 2023 being clearly above last
year's levels. The demand for service across offshore subsegments was driven by
increases in utilisation and day rates throughout the offshore fleet.
In
the LNG carrier sector, the demand for newbuild capacity has continued to be
driven by further investments in expanding LNG liquefaction capacity, despite
the demand for carriers easing off from the record-levels seen in 2022. The
demand for service continued to be driven by the existing fleet operating at
full pace.
In
the containership sector, the contracting of new ships declined from the
previous years’ record levels as the demand for ship capacity was clearly
outpaced by the record volumes of new capacity entering the market. Many owners
continued their longer-term fleet renewal programmes. The demand for service
was burdened by the weaker market sentiment, offsetting the growth in active
fleet capacity.
Across
all the above sectors, the growing pressure to decarbonise operations supported
the demand for both newbuilds and service. This has resulted in investments in
additional fleet capacity, direct fleet replacements, efficiency upgrades or
fuel conversions, and maintenance activities to keep the existing fleet
compliant and competitive.
Focus on energy transition and flexibility
Wärtsilä’s operating environment is influenced by the ongoing energy transition. A more sustainable energy infrastructure is emerging, driven by economics and climate policies. The past decade has witnessed growing investments in solar and wind energy, as these technologies have become the cheapest source for new bulk electricity in two thirds of the world. By 2030, solar and wind technologies are expected to become cheaper than existing baseload generation almost everywhere. The cost of energy storage technology has also plummeted. The storage market is expected to grow rapidly in the coming years, driven by economies of scale and technology development. In parallel, climate policies, such as tightening emissions legislation, are forcing the closure of ageing carbon-intensive energy sources, thus further encouraging the deployment of renewable energy.
The intermittent nature of solar and wind generation is gradually beginning to impact the running hours of conventional thermal capacity designed typically for baseload operation. The role of power system flexibility has thus become a topic of growing importance, as it will be a key enabler of sustainable power systems in the future. Flexible gas-based generation and energy storage are the key solutions for meeting future power system reliability and flexibility needs. Power-to-X solutions will further support reaching the 100% share of renewables in power systems.
In emerging markets, electricity demand is increasing, along with economic growth and improving standards of living. Interest in renewable energy sources is also increasing rapidly as a result of lowering costs, but conventional thermal technology still plays a key role in power production in emerging countries. Demand is the highest for flexible technologies that can adapt to an increasing share of renewables in the future, thus enabling the most sustainable and affordable power systems.
Natural gas continues to be considered as a transition fuel towards more sustainable energy systems. In the developing world, the gas infrastructure is improving and replacing more carbon-intensive energy sources in baseload generation. On a global scale, the role of gas will change, as renewable energy sources will impact the running hour of baseload generation, and more system flexibility will be required. Flexible gas technology will have a key role to play in countries where the energy transition is more advanced, as well as in developing countries seeking future-proof baseload technology.
Hydrogen and synthetic fuels offer interesting possibilities for decarbonised power generation in the future. In a power system that incorporates renewables and battery storage, some of the excess renewable energy could be used in the production of green hydrogen to fuel power plants that balance the power system when cloudy or calm weather reduces the output of solar and wind power plants. Green hydrogen produced via electrolysis could be used as a fuel as such, or could be synthesised to facilitate its handling and use. Hydrogen and synthetic fuels are especially valuable in providing medium and longterm flexibility, as they can be stored and transported when needed. In addition to technology development, wider adoption of hydrogen in power or other sectors, such as industry or transportation, would require extensive investments in infrastructure.
Technological progress, along with increasing power system complexity with intermittent renewable energy sources, is paving ways to use new digital technologies. Remote monitoring, as well as recommendations and forecasting enhanced by artificial intelligence, are becoming more common in power plant operations. New data, along with platformbased business models and solutions, enable system-level integration and asset base optimisation throughout the entire lifecycle of the assets.
Energy markets in 2023
In
2023, high inflation and interest rates continued to impact the global economy.
While price volatility, inflation, and interest rates have moderated, global
GDP growth is estimated to remain restrained. Constraints in global and
energy-related supply chains have eased considerably over the course of the
year. The macroeconomic development caused uncertainty within the overall
investment environment, delaying decision-making especially in the engine power
plants business. On the other hand, easing supply chain constraints have had a
positive effect, notably in battery energy storage.
Global
natural gas prices have decreased from the previous year’s extreme highs but
remain above pre-2021 levels. The year witnessed significant gas price
volatility, showcasing the market’s continued sensitivity to disruptions in
supply and demand. Commodity prices have eased for most materials. Energy and
climate policies around the world continue to evolve towards decarbonisation
targets, and the mid-term energy transition outlook remains strong. Climate
policy reached new milestones in Q4 as more than 120 countries pledged to
triple global renewable energy capacity by 2030. The COP28 final declaration
also called for transitioning away from fossil fuels, in line with Wärtsilä’s
vision of a 100% renewable energy future and readiness to enable engines to run
on future fuels.
Wärtsilä’s
market share during the last twelve months remained at 13% (13%), as global
orders for natural gas and liquid-fuelled power plants decreased by 22% to 10.0
GW during the twelve-month period ending in June 2023 (12.9 GW at the end of
December 2022). Global orders include prime movers over 5 MW in size in up to
400 MW gas turbine plants and engine plants of all sizes. The gas turbine data
is gathered from the McCoy Power Report and is reported with a one quarter
delay due to data availability. Engine data is collected from press releases
and Wärtsilä sales teams. Power plant market share reporting was updated in the
third quarter to reflect our most relevant markets more accurately. Previously,
market shares included gas turbine plants up to 500 MW but did not include
non-Wärtsilä engine plants.