Answering the questions about reducing offshore wind costs

The goal of the OWPB is supporting delivery of a levelised cost of energy of £100/MWh for offshore wind projects reaching Final Investment Decision in 2020. They aim to achieve this by identifying and removing barriers to deployment, sharing best practise and bringing forward innovation and solutions to build a competitive UK-based supply chain. They will create the Cost Reduction Task Force, its key membership is drawn from industry and government. The pace of growth is illustrated with their reminder that it took the UK fourteen years to install its first GW of wind plant, and fourteen months to install the second, the offshore sector moving from some 4MW installed in 2000 to almost 4,000MW in 2014.

In its first year, the OWPB created eight workstreams, each led by a member delivering relevant recommendations on: Supply Chain, Skills, Technology and Innovation, Contracting Strategies, Planning and Consent, Grid, Finance, and Operations and Maintenance. Representatives from each group were asked four basic questions: what barriers are you tackling, what are the deliverables, how are you working, and what does success look like?

WORKSTREAM Q&As

The Supply Chain group comprises twelve members from across industry, government and trade associations, their results being rolled out to industry either at conferences or through individual members. Representing the group, Technic Offshore Wind’s Ron Cookson identifies understanding how to improve industrialisation, standardisation and loss prevention in the supply chain as a barrier to be tackled. Recognising the supply chain has a critical role for successful delivery of the 2012 Offshore Wind Cost Reduction Task Force objectives. He notes that only so much price reduction is possible at component level, a reasonable return on investment needed to reinvest in the longer term. The group’s ambitions include fewer accidents, better communication across the supply chain, cost reduction at project level and a more mature conversation between supply chain and developers.

Innovation is recognised as an important element in cost reduction and Clark MacFarlane from Siemens, representing the Technology & Innovation group, reports that The Crown Estate’s Cost Reduction Pathways Study along with the Cost Reduction Task Force has carried out a lot of groundwork identifying requirements for bringing down cost. Mr MacFarlane states that the Offshore Renewable Energy Catapult is a significant player, promoting innovation with a lot of work and investment underway on various projects, the group having the role of pulling together different strands of activity. Areas of low innovation activity also need to be reviewed. It is early days for the group and higher tier supply chain companies will be asked to participate in events or workshops potentially in the pipeline. New designs will need to be integrated into real projects to realise cost reduction levels stated. Turbine technology innovation is an area of focus with new foundation technologies and improved installation methods, leading to industrialisation of project delivery processes also seen as potential areas for cost reduction.

Representing the Contracting Strategies group, Keith Waller, Infrastructure UK, HM Treasury recalls that the Offshore Wind Cost Reduction Task Force Report noted “evidence suggests strongly that Alliancing approaches have driven down costs in other sectors. Developers should seek to adopt these approaches.” Effective collaboration, procurement and contracting approaches are therefore seen as key elements in enabling sustainable industry cost reduction, traditional contracting approaches used by industry perhaps not proving effective in achieving these aims.

The group’s focus on identifying and setting out which collaborative approaches may be able to remove the barriers will include reporting on potential benefits to developers, investors and supply chain of strategies both pre and post Final Investment Decision. This is described as setting out tactical approaches applicable within a single project as well as more strategic approaches spanning more than one project. Learning lessons from other industries is also on the list for defining a number of alliancing approaches. The group views success as seeing contracting models and collaborative approaches that incentivise companies that are able to drive cost-effective whole life delivery to invest in offshore wind.

For DONG Energy’s Benj Sykes, identifying barriers facing the Planning & Consenting group includes considering if there is sufficient resourcing in relevant statutory advisers along with the effectiveness of key recommendations made in the Habitats and Wild Birds Directive Review.

The group brings together industry, government and key statutory stakeholders to identify barriers with consenting for deployment, and cost reduction in offshore wind. The group also includes representatives from developers, suppliers, government (Department of Energy & Climate Change and Department for Communities and Local Government), The Crown Estate and statutory consultees. They act as intermediaries between RenewableUK’s Consents & Licensing working group and the OWPB, ensuring full alignment of initiatives. Avoiding repetition of work between government and industry is a key principle for the group. They see success as including projects spending less than three years in the pre-application phase, with no more than 15 months for decisions to be made in England and Wales. They also consider it appropriate for developers to be able to make reasonable project amendments during and after the consent process in a simple proportionate way, and that statutory advisors have sufficient resources to provide timely advice to projects.

Stephen Trotter from ABB represents the Grid group and identifies a number of barriers to implementing cost reductions for grid assets between turbine and the mainland transmission grid. These include the cost and availability of transmission connection and electrical equipment lead times specification (including either design standardisation or new technologies and voltages). A barrier mentioned previously by others are issues sounding capacity and flexibility for the onshore transmission and distribution systems, along with issues of the timings of investments largely around how the regulatory framework operates.

The group has a good cross section of representatives from developers, suppliers, OFTOs, The Crown Estate, Ofgem and RenewableUK and their aims include supporting ongoing industry actions to meet the Task Force recommendations on grid, focussing on design standardisation, improving knowledge-sharing and best practice.

An important role for the group is acting as a conduit to and from the OWPB on grid issues as well as other existing grid forums to ensure an alignment of initiatives. Regulatory and commercial frameworks will be monitored, a notable aim being to coordinate with other workstreams such as consenting and supply chain to minimise potential overlaps and ensure issues are addressed effectively. Their vision of success includes ensuring grid issues do not delay offshore wind projects and that technical issues and opportunities are reasonably well understood, including aligning various aspects of grid such as AC or HVDC substation equipment.

RAISING THE FUNDS

The OWPB Finance group draws their representation from various sources of potential capital and risk mitigators within the sector including: insurance companies, institutional investors (debt and equity), banks, fund managers, utilities, developers and representatives from DECC and the Department for Business Innovation & Skills.

The finance aspect of offshore wind development may not be a ‘visible’ feature as such, but is nonetheless a key component associated with the levelised cost of energy. Tony Marsh from the Green Investment Bank reports that the group is therefore looking at ways of lowering barriers to entry to the sector for low cost capital, both debt and equity. These include appropriate revenue support mechanisms and availability of Power Purchase Agreements (the contract between the generator and the buyer which defines the commercial terms for the sale of electricity, therefore a key instrument of project finance) that deal with imbalance issues. This is aimed at ensuring projects can achieve appropriate risk/reward profiles to attract potential investors in sufficient volume, facilitating cost reduction and meeting government deployment targets.

As the industry moves forward, UK offshore wind projects are increasingly moving from construction to the longer-term O&M phase. With gradual changes in project profile, for example deeper water and further offshore, O&M is a dynamic and still evolving element of the industry’s overall scope. As such, there are perhaps many opportunities to factor in cost reduction even at this relatively early stage, based on experience and lessons learned from cost reductions achieved to date.

Jonathan Cole from Scottish Power heads the Operations & Maintenance group and sees this phase as often overlooked when considering opportunities for cost reduction and UK content. The group is conducting a review of both the threats and opportunities affecting the O&M phase and will deliver an action plan focussing on matter such as: sharing data, defining best practice and opportunities for standardisation and common sourcing of certain plant, equipment and services. The plan will also set out timescales for implementation of the recommendations. Mr Cole considers a more collaborative and open approach to O&M across the industry will make a meaningful contribution to improving performance and reducing cost and risk. This should bring additional benefits, such as improved health and safety performance, enhanced UK benefits and recommendations for improvements to the design stage to improve O&M efficiencies.

Another area of the industry in a way ‘invisible’ is ensuring there are sufficient skill resources across the board. Whatever aspect of the industry is considered, having suitable people in both numbers and quality is an absolute requirement. These can include the myriad technical skills required in the supply chain sectors, skilled office-based services such as legal, financial and planning disciplines and the various maritime-based skills involved.

Steve Burgin from Alstom, representing the Skills group, reports they are working to mitigate the risk that industry growth is held back because of a failure to ensure skills gaps are identified and addressed. Satisfying these demands is clearly a relevant area when considering the big question of cost reduction. Mr Burgin considers that by identifying gaps early, the industry will have time to respond in a coordinated and cost-effective manner: an approach intended to reduce duplication of effort and ensure resources are correctly targeted. A plan of action maximising potential delivery from skills delivery bodies and collaboration with industry is proposed once the skills gaps and resulting workforce force planning challenges have been identified. To this end the group is working collaboratively with government, industry, academia and training providers.

Finally, while not listed as a workstream component as such, mention should be made of the Risk Committee. Bringing together a diverse group of senior industry representatives and described as the ‘engine room’ of OWPB, they advise on governance issues including the workstream structure. Under the chairmanship of Alastair Dutton from The Crown Estate the Risk Committee comprises eleven ‘risk owners’ who aim to identify and assess key emerging risks. They then review and revise mitigation strategies as risk evolves. Answering the question what does success look like, the answer is simple – steady progress towards £100/MWh.

By Peter Barker