UK Ups the Stakes Offshore by 32 GW

Even as the UK hailed massive plans for expansion of offshore wind that will see capacity boosted by up to 32 GW, the awkward questions began. Will the supply chain be up to the challenge? Will the right turbines be available at the right time? What about the grid?

What is not in doubt is that when The Crown Estate concluded its Round 3 leasing programme for large offshore wind development, it secured the nation’s position as the world’s offshore pace-setter.

At up to 32 GW, projects planned under Round 3 alone aim to deliver a quarter of the UK’s total electricity needs by 2020, with a combined estimated investment of around £100 billion (US$156 billion).

The nine zones of development could each potentially contain multiple projects with some yielding around 10 GW.

In total, Round 3 is anticipated to deliver at least 25 GW of installations, compared to the combined total of 8 GW from the earlier Rounds 1 and 2. In all, more than 40 GW of offshore sites are currently being brought forward in UK coastal waters.

The nine offshore projects already operational in the UK have a combined capacity of 688 MW from 228 turbines. A further 1156 MW is under construction and 3500 MW more is consented.

Compared with a global total of approximately 1500 MW of offshore wind installed, the UK is, for the moment, racing away.

SiemensSupply chain challenges

Despite the relish with which developers approached the bidding, with competition for each of the zones, considerable technical and supply chain challenges remain. Critics also fear that, without intervention, a relatively small fraction of the overall investment generated may be heading to the UK. They point to the current absence of a significant UK large wind turbine manufacturing industry, and Vestas’ recent controversial closure of its turbine blade manufacturing facility on the Isle of Wight, citing a lack of domestic demand.

Maria McCaffery, CEO of RenewablesUK, formerly the British Wind Energy Association, observes: ‘Despite the UK’s lead in offshore wind energy generation, the UK currently trails behind other leading wind energy producing countries in manufacturing, design and supply chain jobs. Key to securing thousands of new skilled green-collar jobs is attracting new investment in offshore wind technology manufacturing to the UK.’

The trade group also argues that the key obstacles to developing Round 3 are a lack of offshore grid connections, rising production costs and limited supply chain capacity.

Commenting on Round 3, Rob Hastings, director of the Marine Estate for The Crown Estate, acknowledged the implications of 32 GW in just 10 years, particularly voicing concerns in relation to the supply chain, and saying: ‘Of course a programme of this scale brings considerable challenges whether they be technology, accessibility to grid transmission, skills development, planning and consenting, the supply of turbines and cables or the capability of ports and harbours.’

The Crown Estate intends to play an active role by jointly investing directly in zone development as well as in general enabling activities across the programme, to the tune of more than £100 million ($156 million). The UK government also chose the Round 3 announcement to reveal £3 million ($4.8 million) of grants to support the offshore wind supply chain.

A tight turbine market?

Fears over return on investment for offshore wind in a capital constrained world that dogged the industry as recently as six months ago are already easing.

The Round 3 news tops what appears to be a winning trend of UK announcements, coming only weeks after backers of the world’s largest offshore project currently planned, the UK’s 1 GW London Array, signed key supply contracts which put the project on firmer ground.

Developers DONG Energy, E.ON and Masdar secured installation contracts, totalling almost €2 billion ($2.8 billion) with seven European suppliers for the first 630 MW phase of the project, with phase one due to be finished by the end of 2012.

In another signal that the industry’s appetite for offshore development has not been crushed by the recession, UK energy regulator Ofgem has revealed details of a £1 billion ($1.6 billion) competition to develop high-voltage transmission links with offshore wind developments arising from the earlier rounds.

The regulator says that the first phase was ‘characterized by strong competition’ and some new market entrants. And, in March 2009, Siemens and DONG Energy signed an agreement for the supply of up to 500 offshore turbines with a total capacity of up to 1.8 GW, the largest agreement of its kind. DONG continues to draw on this arrangement for UK developments, in January announcing another 75, 3.6 MW turbines for the 270 MW offshore project Lincs, located in the North Sea which joins 1 GW destined for the Walney 1 & 2 and London Array installations.

Some offshore projects remain vulnerable. For example, DONG Energy and E.ON, partners in the consented Scarweather Sands offshore wind farm in Swansea Bay, recently announced that they have decided not to go ahead. The companies claim challenging seabed conditions, relatively poor wind speeds and a restriction on turbine height means that the 30 turbine project is no longer commercially viable, a signal that smaller installations may be those most at risk.

More significantly, RenewablesUK reports that the industry is experiencing a ‘cost hump’ – with costs roughly doubling from £1.5 million ($2.4 million) per MW installed in early Round 1 projects to £3.1 million ($5 million) in Round 3, driven by a falling exchange rate, high commodity prices and a lack of competition among manufacturers.

While falling material prices, a UK-based supply chain and increased competition should reduce costs, the fundamental constraint of turbine supply and the availability of installation vessels remain concerns. Although the recent squeeze on installation capability appears to be resolving itself, with new vessels launched in 2009 and more coming in the year ahead, the turbine supply market remains dominated by Siemens and Vestas, apparently the only companies with any significant commercial operational hours using their existing fleet of offshore machines. Furthermore, the UK is not alone in expressing offshore ambitions. European neighbours with one or more offshore wind farms include Belgium, Denmark, Germany, Holland, and Sweden. There are also offshore installations in China, while France, Spain and the US all have plans underway.

According to the European Wind Energy Association (EWEA), the Round 3 projects, at 32 GW creating a requirement for 6400 new 5 MW turbines, will multiply Europe’s offshore wind energy capacity by a factor of 10.

It forms part of more than 100 GW of offshore wind power currently being planned, mostly in the North Sea and equivalent to 10% of Europe’s electricity.

Given the expectation of soaring demand, it’s no surprise that there are a number of large capacity 5 MW+ offshore machines under development as manufacturers move to enter a growth market.

However, most of these are currently in a transition between advanced testing and the early commercial stage.

With reliability a key consideration for machines offshore – working in an environment where access is invariably difficult and costly, and sometimes impossible or dangerous – developers inevitably turn to those manufacturers which can show a solid track record.

Some analysts fear a potential supply constraint for offshore turbines due to surging European demand with only a limited number of time-served products available.

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