THE UK OFFSHORE WIND SUPPLY CHAIN Why Clusters Matter
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THE UK OFFSHORE WIND SUPPLY CHAIN Why Clusters Matter Research and analysis provided by THE UK OFFSHORE WIND SUPPLY CHAIN: WHY CLUSTERS MATTER About the research This report analyses the rationale behind establishing clusters of offshore wind technology, equipment and services companies. It also examines the optimal strategic location for offshore wind clusters in the UK as well as those areas within the supply chain where investment is required most urgently. The findings are based on a survey of over 70 senior executives in the European offshore wind sector, which was completed in March 2013. The survey and report was written by Clean Energy Pipeline, a specialist provider of research, data and news on the clean energy sector. Clean Energy Pipeline is a division of VB/Research. To supplement the survey data, interviews were conducted with the following senior executives: • Kaj Lindvig, Senior Advisor at A2SEA • Neil Etherington, Group Development Director of Able UK • Peter Sayles, Chief Operations Operator of JDR Group • George Rafferty, CEO of NOF Energy • Jerry Hopkinson, Managing Director Bulks, Ports & Logistics at PD Ports • Bill Scott, CEO of Wilton Group THE UK OFFSHORE WIND SUPPLY CHAIN: WHY CLUSTERS MATTER PRINCIPAL FINDINGS THE NORTHEAST IS THE #1 UK LOCATION FOR AN facilitate better collaboration between the supply OFFSHORE WIND CLUSTER chain and project developers, which is particularly crucial during the initial stages of the project lifecycle. The northeast of England is the preferred location for an According to the Crown Estate’s Offshore Wind Cost offshore wind cluster ahead of both the Scottish and East Reduction Pathways Study, published in June 2012, Anglian coasts. The northeast‘s attraction is due to its improved communication between the supply chain and strong offshore oil and gas heritage, its close proximity developers could potentially reduce the levelised cost of to large offshore wind farms and development zones energy by up to 3.1% by 2020. such as Dogger Bank, not to mention its extensive port infrastructure. THERE IS ROOM FOR MULTIPLE CLUSTERS Innovative offshore wind companies are already starting The northeast is not the only region striving to attract to cluster in the northeast. Major industry names investment from the offshore wind supply chain. Indeed located there already include JDR Cables, MPI Offshore given their close proximity to planned offshore wind and DeepOcean. A full list of offshore wind companies farms and strong port infrastructure, Scotland, Northern located in the northeast is provided on page 6 of this Ireland and East Yorkshire are also vying to attract report. offshore wind companies. Clusters are also forming in Denmark, the Netherlands and Germany. CLUSTERS SHOULD BE LOCATED AROUND PORTS Looking ahead, our survey data indicates that there Our survey asked companies operating throughout the is sufficient demand in the UK and Europe to support entire supply chain what the most important factors five offshore wind clusters with each one comprising: a were when choosing a location for production and large turbine assembly plant, a host of manufacturers assembly facilities. In all but one segment of the supply of ancillary equipment including gearboxes, blades, chain, being in close proximity to a port servicing the nacelles and cables alongside a series of installation, offshore wind sector was the most important factor. logistics and operations and maintenance companies. CLUSTERING REDUCES COSTS POLICY UNCERTAINTY STILL REMAINS AN ISSUE It’s a well known fact that the levelised cost of offshore Investment in the UK supply chain is still being wind energy needs to decline markedly over the next undermined by policy uncertainty. During the last two seven years for the sector to become a significant years turbine manufacturers Vestas, Gamesa, Siemens contributor to the UK’s long term energy mix. and Doosan have all postponed or cancelled major multi- million investments in the UK. One of the core findings of this report (supported by two thirds of surveyed participants) is that clusters of The main source of uncertainty surrounds the switch offshore wind companies can reduce costs. As a starter, to the contract for difference feed in tariff subsidy clusters reduce transportation overheads. They also mechanism, which will apply to all projects that become operational from 2017. Crucially, the government still hasn’t announced the strike price for the tariff, which is essential to determine the financial viability of a project. Many respondents also mentioned the government’s vocal support for natural gas in the recent budget, the cuts to onshore wind subsidies in July 2012 and delays to offshore wind project approvals as further indications that the UK government is no longer genuinely supportive of the clean energy sector. 1 THE UK OFFSHORE WIND SUPPLY CHAIN: WHY CLUSTERS MATTER The supply chain must cluster to generate efficiencies One of the main findings from the survey data is that the that needs to be deployed offshore. To avoid transporting supply chain needs to cluster in certain regions to drive it across the country, it makes sense for the wind turbine down transportation costs and facilitate information assemblers, the monopile industry, the people making sharing – two thirds of survey respondents believe that blades and the people like us doing cables to all be the establishment of offshore wind clusters will cut costs located together. That way everything is very organised dramatically. and efficient in terms of deployment.” “Clusters are all about taking out a whole series of transportation, logistics and handling costs,” explained Neil Etherington, Group Development Director at Able To what extent do you agree that the establishment of offshore wind clusters will UK. “If a UK based turbine manufacturer had to import drive down costs significantly? blades and towers from continental Europe there would be significant additional transport costs and significantly added risks in terms of moving and lifting components 5% and damaging products, all of which would have to be Strongly Agree insured.” 35% Agree Clusters create the perfect environment to become more efficient. Disagree 60% % Strongly Disagree “I think that clustering will increase and I think it should 0 increase,” confirmed Peter Sayles, Chief Operations Operator at JDR. “Most of the industry needs to be located Lift offon the blades dockside due to thewith sheer weight 2 ofcranes equipment in “tandem lift” A Brookfield Ports Company 2 18 Clusters should locate around ports The obvious location for offshore wind manufacturers Advisor at A2SEA. “You can get things produced in and services companies to cluster is at or around a port. Denmark, Germany and France but you then have to ship it to the UK and you have to assemble it locally “Everything will be near the ports because the pieces if you can’t transport it directly from the factory. which you have to install are so big that they can only That will be done in the harbour or a facility near a be shipped around,” explained Kaj Lindvig, Senior harbour.” What are the most important factors to consider when choosing a location for the following facilities? Proximity to Proximity Local economic Well trained Good transport Proximity to Proximity to ports to planned incentives (tax local labour links upstream downstream offshore wind breaks, training force supply chain supply chain farms grants etc) Offshore wind cable 38% 12% 18% 8% 12% 7% 5% manufacturing facility Turbine blade manufacturing 34% 13% 15% 13% 14% 6% 6% facility Gearbox manufacturing 14% 10% 12% 20% 19% 14% 12% facility Foundations manufacturing 35% 20% 14% 14% 11% 5% 2% facility Turbine tower manufacturing 38% 17% 12% 10% 10% 9% 3% facility Steel fabrication works 29% 12% 15% 12% 12% 12% 10% Port servicing the offshore n/a 45% 17% 15% 13% 4% 6% wind sector 3 THE UK OFFSHORE WIND SUPPLY CHAIN: WHY CLUSTERS MATTER The northeast leads the pack According to 53% of survey respondents, the northeast coast of England is the prime location for an offshore wind How effectively could an offshore wind manufacturing cluster, closely followed by the Scottish manufacturing hub situated in the following regions serve the UK offshore wind market? and East Anglian coasts. Essentially this is due to the following factors: Northeast coast (Yorkshire, Durham & Northumberland) 1. Strong oil and gas industrial heritage 53% 26% 21% The northeast of England has been at the heart of the Scottish coast North Sea oil and gas industry for the last forty years and 39% 36% 19% 6% is an established hub of innovation and expertise. Many of the challenges the offshore wind industry faces today, East Anglia coast (Essex, Suffolk, Norfolk & Lincolnshire) including installing and undertaking maintenance work in % % % % harsh environments far out at sea, also affect the oil and 38 32 24 6 gas sector. Northwest coast (Cumbria, Lancashire & Cheshire) “Nearly all the expertise from the oil and gas sector can 24% 33% 21% 22% be transferred to the offshore wind industry in some way,” confirmed Bill Scott, CEO of Wilton Group. “The offshore Irish coast oil and gas industry has been going since the early % % % % 1970s and lots of lessons have been learned. It would 16 29 29 26 be a massive wasted opportunity if the offshore wind sector didn’t learn from these lessons and buy into the Welsh coast technology that the oil and gas industry has developed.” 9% 22% 38% 31% 2. Close proximity to offshore wind farms South coast (Kent, Sussex, Hampshire, Dorset, Devon & Cornwall) 15% 12% 44% 29% The northeast is geographically well positioned to serve a number of large existing and planned UK offshore wind farms and development zones. For instance, it is adjacent Prime Good to Dogger Bank, the largest of all nine Round Three location location development zones. A list of serviceable offshore wind Adequate Poor farms is shown opposite.