Offshore wind market sizing analysis for investment decisions

An offshore wind market sizing analysis has to answer a board or funding panel's first question: how much business can this company win, in the markets it can actually serve?

Pelergy uses three measures:

• Total addressable market (TAM) is the full value or volume of demand for the defined product or service.
• Serviceable addressable market (SAM) is the part of that demand the company can serve, given its offer, location and operating model.
• Serviceable obtainable market (SOM) is the share of the serviceable market the company expects to win.

The three measures give decision-makers different information. TAM establishes whether the underlying market is large enough to justify attention. SAM tests whether the company has a route into that market. SOM provides the basis for a commercial plan, investment case or funding bid.

Model the physical demand

Offshore wind markets often require a physical-demand model before they can be expressed as commercial opportunity. The relevant unit may be tonnes of steel, metres of cable, vessel days, foundation units or volumes of concrete.

Pelergy completed an offshore wind market sizing analysis under the Offshore Wind Growth Partnership WEST programme for a floating-wind concrete and scour-protection manufacturer. Pelergy modelled total addressable market, serviceable addressable market and serviceable obtainable market for the business.

The work covered two demand cases:

• Concrete volumes for floating-wind foundations at the Ardersier facility.
• Granite for scour protection.

Concrete and granite are separate markets with separate demand drivers. A board case needs that separation. Combining them into one headline figure would obscure what the facility manufactures, what each material serves and where the commercial opportunity sits.

A physical-demand model also gives the board a basis for testing assumptions. If the market is expressed in concrete volume or granite requirement, decision-makers can assess whether the proposed manufacturing capacity and commercial plan match the demand being claimed.

Show the narrowing from TAM to SOM

The market model should show how the opportunity narrows at each stage.

TAM includes all demand within the defined market. For the Ardersier analysis, that meant identifying the full demand relevant to concrete floating-wind foundations and granite scour protection.

SAM removes demand the business cannot serve under the case being assessed. The analysis should make those boundaries visible, because they determine whether a large TAM has practical value to the company.

SOM then identifies the share of SAM that supports the business plan. The board or funding panel uses this figure to test the commercial case. SOM connects market demand to the proposed investment, facility or funding activity.

The model must present the logic behind each reduction. A reader should be able to see why a demand category sits in TAM, why it remains in SAM, and why it is included in SOM. A chart without those definitions gives a panel a number to challenge but no basis for assessing it.

Make the evidence usable in a board paper

A board-level business case needs a market analysis that can be read quickly and checked. The analysis should therefore include:

• Definitions of the product, geography and time period covered by TAM, SAM and SOM.
• The physical unit used to model demand.
• A clear account of the assumptions that move demand from TAM to SAM and SOM.
• Tables or figures that point each headline number to its underlying calculation.
• A statement of what the analysis does not establish.

Pelergy's analysis supported the client's board-level business case. The case succeeded and led to an equity investment and a targeted funding bid.

The market analysis provides the commercial demand case: the scale of the opportunity, the part the business can serve and the share it seeks to obtain.

State the limits

A market model should state its limits as directly as its findings. The analysis for Ardersier covered concrete volumes for floating-wind foundations and granite for scour protection. Pelergy did not assess other products, materials or markets in that work.

The distinction matters because a market-sizing analysis supports the decision it was designed to answer. A model for floating-wind foundation concrete does not establish demand for every offshore wind construction product. A model for granite scour protection does not establish demand for other forms of project support.

A board or funding panel can act when the analysis defines the market, shows the route from total demand to obtainable demand, and makes its limits visible. The defined market, demand route and stated limits give the decision-maker a commercial case to test against the investment required.

Pelergy's Offshore Wind Market Sizing Tool provides sourced TAM, segmented SAM and bottom-up SOM for offshore wind technologies, with each figure traced to a named public source.

Image credit: Photo: jay-jerry via Wikimedia Commons, CC BY 2.0 (https://creativecommons.org/licenses/by/2.0). Source: Photo: jay-jerry via Wikimedia Commons, CC BY 2.0 (https://creativecommons.org/licenses/by/2.0).