Frank Wright, Renewable Energy Manager, Douglas-Westwood
October 03, 2012 | 0 Comments
LONDON -- Concern about the links between rising global average temperatures and increasing man-made Green House Gas (GHG) concentrations has led to ambitious long-term policy action on climate change, including the Kyoto Protocol. Implementation is being driven by policy action at both regional and national levels, a prime example being Europe's ambitious '20% by 2020' targets whereby EU-27 leaders agreed to a binding target of sourcing 20% of primary energy from renewable energy sources by 2020.
Of the various low carbon alternatives, offshore wind is well placed due to a combination of factors including large untapped resources, relatively high energy yields and the potential to develop projects on a large ‘utility’ scale. In particular, the potential to develop very large offshore sites, often beyond visual distance from shore, is becoming increasingly attractive as opposition to the development of onshore wind strengthens. Consequently, offshore wind is becoming a critical component in many countries low carbon strategies; for example, Germany has set a target of 25 GW of offshore wind capacity by 2030.
Experience to Date
Despite the potential, offshore wind installation activity has been slow to take off. Industry watchers will remember early projects in the UK market – 2001 onwards – and optimism at the time regarding short-term growth prospects. In reality, sustained growth has taken longer to materialise. However, the last five years have seen progress with the majority of global installations in this period: more than 3.5 GW of offshore wind capacity is now online, in excess of 2 GW is under construction and over 100 GW is in various stages of development.
To date, construction activity has centred on the North European region with the UK representing the largest individual market and major projects coming online in Germany, Denmark, Sweden and Belgium. More than 50 projects – including 16 in the UK and 14 in Denmark – have been installed in Northern Europe representing more than 3300 MW of total capacity, compared with the less than 300 MW installed in the rest of the world. Consequently, a dedicated supply chain providing construction and operational services, has started to emerge around the North Sea region.
Offshore wind projects have increased in scale over the last 15 years and projects to be installed over the next three years to 2014 show this trend continuing (see Figure 1 below). The earliest offshore wind farms were located in water depths of 10 metres or less and were typically less than 5 km from shore. Offshore wind farm capacity, average water depth and distance from shore have all been increasing over this period.
Past 2015, offshore wind projects will continue to increase in scale. For example, many UK Round 3 projects are likely to have capacities greater than 500 MW. These future projects in the UK and other markets represent unique challenges to project developers. Each construction phase of these ‘mega-projects’ will see hundreds of multi-MW wind turbines being installed in water depths of 35 metres or more and increasingly far from shore. Every project will require long-term charters of several highly specialised installation vessels and purpose-built port facilities to handle the increasing dimensions of modern wind turbines, support structures and balance of plant.
As shallow water sites are built out, deep-water sites (water depths of 35 metres or more) are set to become more common in the UK, Germany and other key markets. At this point the types of structures commonly used today, namely monopiles, begin to become less cost competitive as both the dimensions and piling forces increase. New structures to be utilised in deeper water include tripods and lightweight jackets.
Whilst capital requirements are already high with recent projects in UK waters costing more than €1 billion to construct, UK Round 3 zones and other similar mega-projects will require even greater capital outlays on a sustained basis, necessitating new financing models and public support at both a national and regional level.
In the large UK market, projects have historically been built through balance sheet financing by international utilities. However, with the increasing investment implied by future projects – UK Round 3 alone could cost in excess of €90 billion to build – this model is unlikely to be sustainable. Unlocking additional funding streams has thus far proved challenging for the global offshore wind industry with private investors remaining cautious, a trend reinforced by the financial crisis.
Concerns have been raised by private investors due to a combination of factors including high levels of risk in the construction phase, turbine reliability issues and concerns over the long-term stability of financial incentives. The general trend of rising capital expenditure has been a particular cause of concern; inexperience, lack of competition and major technical issues all contributed to significant cost escalation in the five years prior to 2008. At the same time, returns for many recent projects have not been sufficiently attractive to offset risk levels. On a more positive note, there are clear indications that costs have started to plateau.
Supply Chain Development
Recent market growth has stimulated supply chain development and growing differentiation between the offshore wind and onshore wind sectors. A specialist supply chain is developing around the North Sea with leading companies based in Germany, Denmark and the Netherlands. Despite its position as the premier offshore wind market, the UK has struggled to retain investment and profits locally. However, several offshore wind turbine manufacturers have announced UK production facilities. Supply chain movements in the UK have been unlocked in part by aforementioned public infrastructure funds. Major investments are also being made in Germany with an ‘offshore wind cluster’ of turbine and foundation manufacturers developing in the Bremerhaven area.
With increasing scale, competition for manufacturing capacity and installation resources is becoming increasingly fierce. This has led to a trend towards vertical integration and consolidation in the supply chain with wind turbine manufacturers acquiring manufacturers of major subcomponents such as gearboxes and generators. This trend is continuing into the area of installation vessels where several project developers have identified a need to secure vessels, either through long-term charters or in extreme cases by funding new-builds. As an example, RWE Innogy placed a €100 million order with Daewoo Shipbuilding & Marine Engineering in the Korean Republic to construct an offshore installation vessel.
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