Changing the Scale of Offshore Wind Examining Mega-Projects in the United Kingdom Contents

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1 Offshore wind ‘mega-projects’ in the 3 United Kingdom 1.1 Market context: Offshore wind in the United Kingdom 5 The Electricity Market Reform white paper 9 The Renewables Obligation (RO) Scheme: Already a billion- 9 pound market 1.2 Costs and timelines for offshore wind projects 11 1.3 Mega-projects as a key driver of competitiveness 13 Leading practices in capital projects management 17

2 Key challenges for offshore wind 19 mega-projects 2.1 Turbine supply chain 21 Case study: Forewind 25 2.2 Vessel contracting 27 Case study: SeaEnergy PLC 29 2.3 Development and HSE: Leveraging the experience 33 of offshore oil and gas Case study: Offshore wind: A perspective from oilfield 35 services companies 2.4 Grid integration of offshore wind 39 Natural gas as the current technology of choice for 42 backup of intermittent generation 2.5 Other considerations and challenges 45

3 Conclusions 47 Implications for key players 50

4 Glossary 53

5 Authors 54

6 Reference 55

1 2 1 Offshore wind ‘mega-projects’ in the United Kingdom

3 4 1.1 Market context: Offshore wind in the United Kingdom

Wind is one of the United Kingdom’s The UK government has adopted a Providing financial support for (UK) most plentiful renewable energy series of policy measures to stimulate renewables. In the summer of 2011, resources. Studies show that, as a the progressive deployment of offshore the UK government published the nation, the UK has the most favourable wind which, alongside other renewable Electricity Market Reform (EMR) conditions for offshore wind power energies, is expected to play a crucial white paper9 (see sidebar on page generation in Europe and perhaps role in attaining these challenging 9). The EMR seeks to adopt a series in the world1. According to industry objectives. To date, these policies of framework initiatives to provide association RenewableUK (formerly have proven effective in attracting long-term, comprehensive and targeted the British Wind Energy Association), investment and supporting the sector’s support for low-carbon generation and the electricity generation potential of growth, as evidenced by the rapidly renewable technologies. Currently, the UK offshore wind alone2 could amply increasing capacity and electricity principal incentive supporting offshore exceed the country’s total electricity production of offshore wind, as well as wind development is the Renewables demand requirements3. by the diversity of investors. Installed Obligation (RO, see sidebar on page capacity of offshore wind turbines 9), but other support mechanisms This plentiful source of clean and has more than doubled since 2008, (such as the proposed feed-in-tariffs renewable energy is a key piece of the reaching some 1.3 gigawatts (GW) with contracts for difference) are UK’s strategy to meet its ambitious in 20106, or about 1.5 percent of the expected to bring additional support. climate change and renewable energy UK’s total generation capacity, and commitments. At the European Union placing the UK as the global leader Unblocking barriers to delivery. The (EU) level, the 2009 Renewable Energy in installed offshore wind plants7. second main component of ORED’s Directive stipulates that 15 percent The 15 currently operational offshore mission is to identify and address issues of the UK’s final energy consumption wind farms, which have average load that affect the timely deployment of should come from renewable energy factors that are typically much higher established renewable technologies by 2020, up from 3 percent in 20104. than for onshore wind, produced about including the planning system, supply In parallel, the current carbon budget 1 percent of 2010 total electricity chains and grid connection. under the UK Climate Change Act (CCA) output in the UK (approximately 3 of 2008 aims to reduce the country’s TWh)8. Notwithstanding, a steep In addition to the RO and the planned greenhouse gas (GHG) emissions by increase in offshore wind capacity elements of the EMR, the UK Renewable 10 at least 34 percent by 2020 and by at growth is still required if the Energy Roadmap , published alongside least 80 percent by 2050 (on a 2010 renewable energy and emissions the EMR white paper, lays down a set baseline)5. The CCA is also geared to abatement targets are to be met. of supplementary policies, measures deliver the UK’s share of the emissions and support programmes to further reduction targets adopted under the A supportive regulatory stimulate the development of the EU’s Emissions Trading Scheme directive offshore wind industry. In particular, (EU ETS). The ETS is the key instrument framework these measures seek to remove a series of barriers that have been identified for achieving the EU’s proposed targets The Office for Renewable Energy as limiting factors to the development to the United Nations Framework Deployment (ORED) is the administrative of the offshore wind industry. These Convention on Climate Change’s body tasked with ensuring the programmes include11: (UNFCCC) negotiations. attainment of the UK’s renewable energy targets. ORED’s activity relevant to offshore wind is focused on:

5 Supporting innovation to reduce Accessing finance: Offshore wind costs: The government will provide up will be a strong candidate for support to £30 million in 2011-2015 to reduce from the Green Investment Bank costs through technology development (GIB)12. The UK government will and demonstration. It will establish work with developers and investors an offshore renewables Technology through the Offshore Wind Developers and Innovation Centre (TIC). A Forum13 to identify the investment £25-million investment from the Energy capital required for offshore wind Technologies Institute (ETI) will go to a and whether further government drive-train test facility at the National action is appropriate. The government Renewable Energy Centre (NaREC). will take action to reduce investor uncertainty in relation to oil and gas Developing the supply chain: Up clauses in offshore wind farm leases. to £60 million for the development of wind manufacturing facilities Ensuring cost-effective grid at ports will be provided by the investment and connection: The government, as well as some £70 Offshore Transmission Coordination million from the Scottish government Project review14 of incentives for to strengthen port and manufacturing coordination will be performed to facilities for offshore wind turbines ensure coordinated development of and components in Scotland. medium-term (Round 3) offshore transmission assets. The review will Minimising investment risk: The develop a long-term position on security government will complete the requirements for grid connection. accelerated banding review of the RO, implement electricity market Planning and consenting: Manage reform and put in place EMR-RO the potential impacts of offshore transition arrangements. developments on other users of the sea and broader environmental considerations through publication of an Offshore Strategic Environmental Assessment15. Identify and, where appropriate, manage potential delays to consenting decisions.

6 Outlook for offshore wind In 2010, Round 3 was concluded, awarding winning applicants the lease in the UK of areas with a potential to install up to The Renewable Energy Roadmap’s 32 GW of offshore wind power. In stark ‘Renewable Energy Strategy lead contrast to the two previous rounds, scenario’ suggests that, by 2020, about the average project size in Round 3 was 30 percent of electric power could come approximately 1 GW. Construction has from renewable sources, compared to already begun for one of these mega- around 6.7 percent in 201016. Offshore projects, and an additional 11 mega- wind will have a central role in delivering projects are in the planning stages (see those ambitious objectives. Section 1.3).

The ‘central range’ of estimates by the These mega-projects will have government indicates that some 18 significant and diverse effects, not GW of offshore wind power could be only across the wind industry’s value operational by 2020, growing to 40 chain in the UK and beyond, but GW by 2030 (see Figure 1). Separate also across the electricity and fuel from the 4.2 GW expected to be value chains. This Accenture paper operational over the next 24 months assesses and discusses the challenges or so (see Figure 2), achieving the 2020 of such mega-projects and their target implies a compound growth potential implications for the relevant rate of 20 percent/year. Assuming players across the energy industry. deployment of wind farms at that scale and using offshore turbines with a In this paper, we review the key capacity of 5 MW, meeting the target challenges facing the offshore would represent a demand of some wind industry and explore 360 offshore wind turbines/year. This potential solutions, including: level of demand and deployment will • Key bottleneck areas in the value chain have important implications and will such as the turbine supply chain and require significant changes across vessel contracting. component supply chains, logistics and services, as well as health, safety • Offshore infrastructure development and environmental management. and health, safety and environment (HSE). Indeed, the rapid pace of required growth in UK offshore wind capacity and • Grid integration and intermittency generation is prompting the development management. of what in this paper we are referring to • Other considerations and challenges, as ‘mega-projects’; that is, wind farms including access to finance, consenting with capacities in excess of 800 MW— and R&D programmes. roughly the size of a utility-scale large coal- or natural gas-fired plant. The size In our concluding remarks we look at and complexity of developing projects some of the expected implications on of this size offshore is similar to a small wind and broader energy industry players field development in the North Sea. such as:

Offshore wind mega-projects are • Utilities. already on their way. The UK Crowne Estate, which is the landlord of the UK’s • Oil and gas companies. seabed, has carried out three rounds • Turbine manufacturers. of tenders for leasing the seabed for • Oilfield service providers. offshore wind projects17. In Rounds 1 and 2, which respectively took place in • Vessel contractors. 2001 and 2003, leases for some 8 GW of potential capacity were awarded to winning applicants. The average project size in Round 1 and Round 2 was, respectively, approximately 100 MW and approximately 400 MW.

7 Figure 1. Deployment potential to 2020 for offshore wind in the UK.

Terawatt-hours (TWh) 90

60 18 GW

40 11 GW 30

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Industry low Industry high Central range

Source: “UK Renewable Energy Roadmap”, July 2011, UK Department of Energy and Climate Change, www.decc.gov.uk.

Figure 2. Existing capacity and planned pipeline of offshore wind projects in the UK.

Megawatts (MW)

10,000

9,000

8,000 3,675 7,000

6,000

5,000 1,224 9,116 4,000

3,000 2,359

2,000

1,000 1,858 0 Operational Under Consented In planning Total construction

Source: ‘Accenture analysis and UK Renewable Energy Roadmap’, July 2011, UK Department of Energy and Climate Change, www.decc.gov.uk.

8 The Electricity Market Reform white paper

In July 2011, the UK government A feed-in-tariff with contracts for published the document, ‘Planning our difference (FiT-CfD) to provide stable electric future: a White Paper for secure, financial incentives to invest in all forms affordable and low-carbon electricity’. of low-carbon electricity generation. The document, now referred to as the Electricity Market Reform (EMR) An emissions performance standard white paper, sets out key measures to (EPS) set at 450 grams (g) carbon attract investment, reduce the impact dioxide (450g CO2)/kilowatt-hour (kWh) on final prices, and create a secure mix to provide a clear regulatory signal on of electricity sources including gas, the amount of carbon new fossil-fuel new nuclear, renewables, and carbon power stations can emit. capture and storage. Most of the main components of the EMR package A capacity mechanism, for demand will have a direct or indirect effect response as well as generation. on offshore wind investments and The government plans to legislate operations and include: for the key elements of EMR in A carbon price floor to reduce investor spring 2012, and for legislation to uncertainty stemming from price be implemented by the end of spring volatility in the EU ETS by putting a fair 2013, with a view for the first low- and minimum price on carbon emissions carbon projects to be supported and provide a stronger incentive to under its provisions around 2014. The invest in low-carbon generation now. government’s 2012 budget confirmed ongoing support for these plans18.

The Renewables Obligation (RO) Scheme: Already a billion-pound market

The main policy supporting UK offshore The RO scheme also provides in pricing the ROCs. ROC trading is wind development and other renewables compliance flexibility and economic administered by the Non-Fossil Purchase is the Renewables Obligation (RO), efficiency through the issuance Agency (NFPA), which connects buyers which came into force between 2002 and trade of Renewable Obligation and sellers of ROCs through electronic (England, Scotland and Wales) and Certificates (ROCs). The Office for Gas auctions (e-ROC). 2005 (Northern Ireland). The RO is an and Electricity Markets (Ofgem), the ‘obligation on electricity suppliers to UK market regulator, administers ROCs Since 1 April 2009, the amount of source a specific and annually increasing to qualifying installations producing electricity to be stated in a ROC has proportion of electricity from eligible renewable power. These ROCs can depended on the technology used to renewable sources or pay a penalty’19. then be sold by generators directly to generate the electricity, a change to The obligation side of the RO scheme electricity suppliers or traders, and the original scheme that is referred to is similar to the Renewable Portfolio can be traded separately from the as ‘banded RO’. Prior to that date, one Standards used in other markets such as physical electricity supply to which they ROC was awarded for each megawatt- the United States20, effectively creating relate. This has created a market for hour (MWh) of renewable electricity a monetary incentive for suppliers ROCs which, in addition to providing generated. With the introduction (through prospect of a penalty) to a monetary incentive to investors in of banding, different generation increase the share of renewable power renewable power via revenues from ROC technologies receive different numbers in their supply portfolio. sales, serves to deliver greater economic of ROCs depending on their costs and efficiency by leveraging the forces potential for large-scale deployment. of supply, demand and competition

9 The obligation levels for 2010-2011 Britain suppliers will be subject to were 0.111 ROCs/MWh of electricity the RO until at least 31 March 2037, supplied to customers in England, Wales and those in Northern Ireland until and Scotland, and 0.0427 ROCs/MWh at least 31 March 2033. The buy-out of electricity supplied to customers in price for the 2011-2012 compliance Northern Ireland21. In 2011-2012, the period was set at £38.69 per ROC22. level of the obligation will increase to 0.124 ROCs/MWh supplied in England, Between 1 April 2009 and 31 March Wales and Scotland, and 0.055 ROCs/ 2010, Ofgem issued 21.2 million MWh supplied in Northern Ireland. ROCs (representing 20.3 GWh of renewable electricity generation)23. Suppliers meet their obligations by Between January and December presenting sufficient ROCs to Ofgem to 2011, the average price for ROCs cover their obligation. Where suppliers sold via e-ROC auctions was £47.95/ do not have sufficient ROCs to meet ROC, for 712,000 ROCs auctioned their obligation, they must pay an over the period24. This suggests an equivalent amount into a fund known annual value of the electronic ROC as buy-out, the proceeds of which market of some £34 million. The value are paid back on a pro-rated basis to of the full ROC market, assuming an those suppliers that have presented annual issuance of some 24 million ROCs, an additional incentive. The ROCs25 and a unit price of £48/ government policy intent in the 2010 ROC, would be about £1.15 billion. amendment orders is that Great

ROC banding for different renewable generation technologies.

Technology ROC band

Offshore wind 1.5 ROCs/MWh 2 ROCs/MWh for stations or capacity accredited between 01/Apr/2010 and 31/Mar/2014

Onshore wind 1 ROC/MWh

Wave and tidal 2 ROCs/MWh

Dedicated energy crops 2 ROCs/MWh

Advanced gasification and pyrolysis and 2 ROCs/MWh anaerobic digestion

Sewage gas receives 0.5 ROCs/MWh

Landfill gas 0.25 ROCs/MWh

Source: Renewables Obligation, UK Department of Energy and Climate Change, www.decc.gov.uk.

10 1.2 Costs and timelines for offshore wind projects

At first glance, a wind turbine may competitiveness relative to other power over to the wind farm operator. appear as mechanically simpler than generation technologies. Indeed, implicit During the investment phase, the traditional electricity generation in EWEA’s forecasts and estimates is a majority of time is spent in planning technologies; however, the development declining investment cost per MW of and obtaining consent, activities that of an offshore wind farm is a technically installed offshore wind plant, which is can take up to five years and require complex, lengthy, risky and capital- illustrated in Figure 3. EWEA’s figures up to 10 percent of total capital intensive process. In fact, offshore wind suggest that investment costs would expenditure to be spent well before is still an emerging technology whose have to decline over the next decade the final investment decision is made. competitiveness vis-à-vis traditional from the current £2.3 million/MW to generation technologies such as gas- £1.3 million/MW in 2020. This represents Large capacity offshore wind farms have and coal-fired plants in the UK is, in a 46 percent reduction in investment not yet been tested at scale and over part, made possible by government costs over the period, equivalent a full life cycle, but they are expected support schemes such as the RO. to a compound annual growth rate to have a life span of 20 years or more. Without such support, commercial-scale (CAGR) of -6 percent. Similar projected During this operations phase, the investments in offshore wind would not cost reductions for the UK have difficult offshore marine environment materialise under the current energy recently been published in a report means that a large portion of operations market conditions26. commissioned by the Department for and maintenance (O&M) costs need to Energy and Climate Change (DECC)28. be dedicated to vessels and equipment. One of the necessary conditions for offshore wind to become a A typical offshore wind project is The development, construction and sustainable, mature and competitive composed of three phases: investment, operation of an offshore wind farm power generation technology (i.e., operation and decommissioning (see is a therefore a lengthy, risky and one that is commercially attractive Figure 4). Capital spend is greatest capital-intensive project. Important without government support, relative in the investment phase, which can cost reductions across all stages of the to competing alternative generation account for up to 80 percent of investment and operations phases will technologies), is the need for investment total project funds. Of total capital be required to make offshore wind a costs to significantly decline. In a recent expenditure (CAPEX), the turbine, its technology that is competitive with report27, the European Wind Energy components and structure account for other power generation alternatives. Association forecast that Europe may the majority of investment, requiring Cost reductions are thereby a necessary have some 40 GW of offshore wind by 50 to 80 percent of the total. Due condition to achieve the UK’s ambitious 2020. Such a deployment of offshore to the nature of the offshore marine offshore wind capacity targets. wind capacity would require a quite environment, the development and rapid investment and construction consenting component can absorb up Accenture believes that the emergence programme, moving from about 1GW to 10 percent of capital requirements, of mega-projects will be a significant installed/year in 2011 to more than 6 while the installation phase can force in helping deliver those required GW/year in 2020, and a cumulative require up to 15 percent of CAPEX. cost reductions. The remainder of this investment of some £55 billion over that paper examines how mega-projects same period. The development and construction will transform the offshore industry of an offshore wind project can also through the demands it will place on key To attract the substantial investments be of considerable length, with the components of the value chain. required to deliver this scale of growth, investment phase necessitating up the offshore wind industry will need to nine years between inception and to demonstrate a trend of increasing consenting, to handing the project

11 Figure 3. Planned capacity growth of offshore wind in Europe and expected evolution of investment costs.

Megawatts (MW) Million £/MW

8,000 5

7,000 4 6,000

5,000 3 4,000

3,000 2

2,000 1 1,000

0 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Forecast new capacity build (MW) Investment cost (million £/MW)

Source: Accenture calculations; ‘Wind in our Sails: The coming of Europe’s offshore wind energy industry’, European Wind Energy Association, 2011 www.ewea.org.

Figure 4. Offshore wind project life cycle.

5-7 years

4-5 years21-2 years 1.5-2.5 years 0+ years1-2 years

Component Operations/ manufacture maintenance Development Installation Decommissioning Turbine manufacture Support services

CAPEX 70-80% OPEX 20-30% Large scope for technology and logistics improvements

Development and Components and structure O&M Decommissioning consenting Installation 5-10% of CAPEX 20-30% of CAPEX (Vessel and equipment) 0-5% of OPEX 10-15% of CAPEX 20-30% of OPEX Turbine 30-50% of CAPEX

• Regulatory uncertainty • Lack of risk sharing • Constrained vessel supply and lack of • Heavy dependence on • Low EOL value • Costly surveys • Insufficient capacity bespoke vessels subsidies • Recyclability • Risk bias on developers • Inefficient logistics • Reliability • Bottlenecks in grid connectivity

• Multiple contracting • Lack of standardisation

Notes: Timing based on installation of a 100-turbine, 300-MW wind farm in 25 metre water depth. Cost percentages are rough averages of publicly available data. CAPEX = capital expenditure; EOL = end of life; OPEX = operational expenditure.

Source: Accenture analysis.

12 1.3 Mega-projects as a key driver of competitiveness

According to UK government estimates Figures 5 and 6 show the main offshore • Greater appetite for investing in in the Renewable Energy Roadmap29, wind projects worldwide and the trend optimising and integrating supply in 2010, the levelised energy cost30 towards mega-projects. Noteworthy is chains. of offshore wind was in a range the fact that the bulk of mega-projects between £149 and £191 per MWh. globally are expected to be constructed • Larger turbine size and next- To make offshore wind competitive in the UK (more than 70 percent of the generation technologies for with unsubsidised power generation identified planned projects), making substructures could jointly deliver lower technologies such as combined cycle the country a pivotal geography installation costs, greater power output gas turbines, the levelised cost of for the successful development and per unit of investment (greater energy offshore wind would have to decline deployment of this technology. capture) and lower operations cost. to somewhere nearer to £100 per MWh. Achieving this reduction would The capacity of mega-projects is • Faster and safer installation and necessitate a major cost savings of significantly larger and, in many cases, operations could be facilitated by a between 30 and 50 percent. an order of magnitude greater than any larger fleet of bespoke and specialised wind farm currently in operation. The vessels for offshore wind. With this scale of cost-reduction emergence of such mega-projects brings requirements, even an industry-wide about the potential to significantly • More mature technologies and implementation of leading practices in drive down costs in offshore wind processes would perform with higher today’s scale of offshore wind farms development. Indeed, there is ample reliability, reducing operating costs and (100 to 300 MW) would not suffice proof in the energy industry that health and safety issues. to drive down costs to make offshore increasing project size is a substantial Figure 7 provides greater detail of wind competitive with traditional driver of cost reduction. This point has candidate areas where the scale power generation technologies. been shown in the development of of mega-projects could impact Research by IPA31 indicates that nuclear plants, and of oil and liquefied components of the offshore wind a majority share of large, complex natural gas (LNG) tanker vessel size and project life cycle. capital projects carried out since 1993, LNG liquefaction units, among others. such as large-scale power plants or By moving from the current project size offshore oil and gas platforms, have to mega-projects, some examples of been unsuccessful or suffered from areas where economies of scale could be cost overruns. Accenture experience achieved are: has shown that the implementation of leading practices in managing • Better risk sharing and more efficient large capital projects can achieve contracting. cost reductions of up to 20 percent per billion dollars of capital. While • More cost-effective geological substantial, such savings still fall short surveys. of the important reductions required • Greater competition putting to make offshore wind competitive: downward pressure on prices across enter the quest for economies of parts of the value chain. scale through mega-projects32.

13 Figure 5. Evolution of offshore wind farm size: from projects to mega-projects.

Offshore wind farms - operational Distance from shore (km) 100 Mega-projects

51 90 100 0 54 100 1,000 10,000 Project capacity (MW) - logarithmic

Thanet Rødsand II Walney I Horns Rev II Lynn and Inner Dowsing Bubble size: number of turbines

Offshore wind farms - under construction Distance from shore (km) 100 Mega-projects 80

88 140 175 75 0 100 1,000 10,000 Project capacity (MW) - logarithmic

London Array BARD Offshore 1 Lincs Greater Gabbard Sheringham Shoal Bubble size: number of turbines

Offshore wind farms - planned Distance from shore (km) 100 Mega-projects

720 50 400

350 150 420

0 100 1,000 10,000 Project capacity (MW) - logarithmic

Bristol Channel Irish Sea Firth of Forth Norfolk Bank Hornsea Bubble size: number of turbines (assumes 10 MW turbines)

Source: Accenture analysis. 14 Figure 6. Large offshore wind projects and mega-projects.

Project name CountryNumber of Distance Size Mega- Consortium members turbines from shore (MW) project? (km) Operational Thanet UK 10011300 No Vattenfall Horns Rev II Denmark9130209 No DONG Rødsand II Denmark909 207NoE.ON Lynn and Inner UK 54 5.2194 No Centrica Dowsing Walney IUK5114184 No DONG & SSE Under construction London ArrayUK175 20 1,000Yes DONG, E.ON, Masdar Greater GabbardUK140 23 500NoSSE, RWE npower BARD Offshore 1Germany 80 90 400No Enovos, BARD Group Sheringham ShoalUK8817315 No Scira (Statoil & Statkraft) LincsUK758 270NoCentrica Planned Dogger Bank UK TBC125 9,000Yes SSE Renewables, RWE npower Renewables, Statoil and Statkraft Norfolk Bank UK TBC53.57,200 YesScottish Power Renewables and Vattenfall Vindkraft Irish SeaUKTBC 15 4,200Yes Centrica Renewable Energy and involving RES Group HornseaUKTBC 34 4,000 YesMainstream Renewable Power and Siemens Project Ventures Firth of ForthUKTBC 22 3,500Yes SSE Renewables and Fluor Great Lake ArrayCanadaTBC TBC1,600 YesTrillium Power Wind Corporation Argyll ArrayUKTBC 51,500 YesScottish Power Renewables Bristol ChannelUKTBC 14 1,500Yes RWE npower Renewables FinngrundenSweden300 40 1,500Yes WPD Offshore Moray FirthUKTBC 28 1,300Yes EDP Renovaveis and SeaEnergy Renewables Delta Nordsee 1Germany 286391,255 YesE.ON Mørevind Norway TBCTBC 1,200Yes TrønderEnergi Kraft AS Triton KnollUKTBC 32 1,200Yes RWE npower CodlingIreland 220131,100 YesFred Olsen Renewables/ Treasury Holdings IdunnNorway TBCTBC 1,100Yes Fred Olsen Renewables StadviindNorway TBCTBC 1,080Yes Vestavind Kraft AS Ægir Norway TBCTBC 1,000Yes Oceanwind AS Sørlige Nordsjøen Norway TBCTBC 1,000Yes Lyse Produksjon AS Bohai BayChina TBCTBC 1,000Yes CNOOC Aiolos Germany197 120985 YesWPD Offshore Innogy Nordsee 1Germany 16240985 YesRWE Innogy Beatrice 2UK184 13.5 920Yes SSE Renewables, Repsol Nuevas Energies Inch cape UK 18022905 YesRepsol Nuevas Energies Isle of WightUKTBC 20.7900 YesEneco New Energy

Sources: Accenture and RenewableUK. Used with permission. 15 Figure 7. Evolution of offshore wind project life cycle and candidate areas of cost reduction.

Component Operations/ manufacture maintenance Development Installation Decommissioning Turbine manufacture Support services

• Expensive seabed • Atomised supply chains • Nascent services • Revenues from • Little experience of surveys • Lack of standardisation sector subsidies decommissioning • Lengthy licensing • 5MW gearbox units • Supply shortage • Source of intermittency • Low recyclability of As is • Multiple contracts for • Monopile and space • Adapted vessels – require costly firming certain components development phase frame substructures • Bottlenecks in grid and grid upgrades • High decommissioning • Limited risk sharing • Many onshore connection • Nascent services sector costs technologies and components • HSE issues – high practices transferred to insurance costs offshore

• Efficient survey • Optimised supply • Mature services sector • Improved energy • Developed technology from oil chains • Bespoke vessels capture and reliability decommissioning To be and gas • Standardisation for • Adequate supply of all • Compete with all sector • Streamlined licensing components installation generation • EOL value for turbine • End-to-end • Double-digit MW components technologies components contracting direct drive and hybrid • Behave as baseload, • Good recyclability • More balanced risk units through storage and sharing • Second-generation adequate grid substructures using oil integration with and gas industry back-up capacity technology • Mature services sector • Bespoke offshore • Limited HSE issues – technologies reduced insurance costs

Source: Accenture analysis.

16 Leading practices in capital projects management

As shown in the figure below, the savings per £1 billion in capital spend management of large capital projects and deliver up to 5 percent increases in is composed of six key phases, and operating margin, are achieved through: includes initial business strategy, licensing and permitting, design • Process efficiency improvements. engineering, procurement, construction • Greater assurance of configuration and commissioning, and operations. controls. Accenture experience has shown that • Optimised sourcing and procurement the implementation of leading practices strategies. across each of these phases has the • Tight control of vendor execution and potential to unlock significant benefits adherence to schedule. by achieving savings and delivering efficiency and performance gains. The • Increased availability of plants at benefits, which can be up to 20 percent operatorship handover.

Standard and leading practices in capital projects management and scope of benefits.

Procurement and engineering, Business strategy Licensing and permitting Design engineering procurement and construction (EPC) Construction and start-upOperations

Standard practice Standard practice

Strategy is defined on a project-by- Permitting and licensing function largely EPC vendors own engineering processes, Sourcing strategy is not inclusive of all PMO processes are established on a Asset start-up and initial operations project basis and not inclusive of EPC made up of external contractors owner-operator performs scope approvals projects within a capital portfolio project basis, without an overall standard heavily supported by engineering and EPC considerations vendors

Project risk measures not clearly defined Licensing documents managed on a Multiple vendors perform engineering Lack of transparency into sub-supplier Lessons learned are not tracked and Lack of information transparency results in and integrated into the overall capital project-by-project basis activities for a single project relationships (EPC owns relationship with shared across projects or functions frequent data requests to obtain key allocation plan subs) operational data

Cost-driven approach to lowering Tracking and payment of contractor Short-term focus, less than five-year Loose integration of licensing change Manually intensive processes to reconcile Operations spends the first few years up-front component costs, versus total claims against a specific contract or planning horizon management processes with EPC vendors engineering deliverables uncovering design and construction flaws cost of ownership for the asset group of contracts is labor-intensive

Leading practice Leading practice

Clear strategy is defined and guides all Internal staff with deep regulatory The owner-operator has a defined Optimisation of procurement for critical Well-defined PMO structure and methodol- Engineering and EPC vendor support project decisions relationships make up organisation information strategy embedded into items across a portfolio of capital projects ogy, including processes, project controls focused on providing future services, contractual obligations and earned value metrics lowering long-term O&M costs Strategy governs EPC decision-making Leverage sourcing strategies to reduce processes Licensing function builds an integrated Heavy use of a 3-D model to identify up-front costs and long-term spare part issues Automated tracking and payment of Operations uncovers design and schedule with regulatory agencies cross-vendor engineering discrepancies contractor claims using tools that feed construction flaws during the training cost data to the project schedule Portfolio strategy where all projects are and procedure authoring process optimised Assured design changes with equipment, Tight engineering change control processes constructability and assets are identified Licensing processes are tightly integrated Integration of quality assurance and lessons Information turnover has been performed in place to identify deltas between and managed early in the procurement with EPC vendors to reduce rework learned processes to ensure continuous Project risk measures standardised for all revisions and maximise impact on prior to operations, enabling better process improvement across multiple projects projects operational output maintenance efficiency

Reuse of content is embedded into the Systematic management of EPC vendor and Longer-term focus, with multiple overall structure of the licensing Use of information standards (ISO 15926) sub-supplier relationships to optimise the Engineering data feeds training and Performance and trending data shared planning horizons deliverables to drive data exchanges and collaboration value delivered start-up processes with key business partners

Typical benefits Typical benefits

Benefits are realised in subsequent 15-25% savings in licensing costs, 2-5% savings per £1 billion in capital spend, 5-8% savings per £1 billion in capital spend, 3-6% savings per £1 billion in capital 2-5% increase in operating margin, due to project phases achieved through process efficiency achieved through greater assurance of achieved through execution of strategic spend, achieved through tighter control the increased availability of plants improvements configuration control associated with a sourcing and procurement strategies of vendor execution and adherence to operating at design output during initial design change project schedule years of operation

Source: Accenture analysis.

17 Procurement and engineering, Business strategy Licensing and permitting Design engineering procurement and construction (EPC) Construction and start-upOperations

Standard practice Standard practice

Leading practice Leading practice

Typical benefits Typical benefits

18 2 Key challenges for offshore wind mega-projects

Along with the significant potential for producing clean electricity with offshore wind mega-projects comes the fact that some of the challenges are also magnified by their scale; overcoming these challenges will be key in delivering the imperative of cost reductions and better project economics. The scale, complexity and investment required for mega-projects mean that current supply chains, business models, processes and practices will have to change. There needs to be a line of sight towards lower development and operating costs and greater revenues or these projects will not be built. This section highlights what Accenture believes are the four biggest hurdles that the industry will have to surmount as mega- projects begin to emerge.

19 20 2.1 Turbine supply chain

If all UK-planned offshore continental Europe. Yet, ensuring cost- Overview of the turbine efficient growth and guaranteeing high wind is to be built within quality under such demand levels could supply chain the period of 2015 to pose serious challenges. The names of the main elements of an 2022, the average rate offshore turbine are not dissimilar from The turbine supply chain is therefore a those of its land-based counterparts of construction would potential bottleneck. In its current state, although, for the reasons previously be one turbine per day— the supply chains serving the nascent discussed, these are quite likely to offshore wind industry possess a series evolve in time. Differences between significantly greater than of characteristics that need to evolve the two types have and will continue the industry’s current for mega-projects to become viable and to develop over the years with respect attractive investments. Many of these production capacity. to turbine size, blade materials and characteristics are a direct consequence performance, drive train and, especially of the absence of a strong demand-side The global wind turbine market is with the expected emergence of double- pull that incentivises R&D spend, cost currently oversupplied, as the general digit megawatt units, towers and reductions, and greater competition, economic downturn, limited availability sub-structures. Also, the development of cooperation, integration and of capital, and high and volatile prices projects increasingly further from shore specialisation. So, if the higher demand for raw materials have resulted in means that transmission technology does begin to materialise, is there real frozen projects and generally weaker will very likely shift from high voltage potential for offshore wind turbine demand. With incremental demand alternate current (HVAC) to high voltage supply to transform and deliver savings? in Europe and the Americas being direct current (HVDC) due to the lower losses over large distances from the outpaced by that in China and other Part of the answer lies in that much latter technology. Asian economies, manufacturing is of the existing offshore turbine rapidly being transferred eastward, supply chain is set up to cater for the also hurting the supply side through The degree of vertical integration development of the smaller-scale, in the offshore wind turbine market market share losses for the industry land-based wind farms—which today in the Western economies. is quite limited and the business make up the bulk of wind turbine models are varied. Most of the demand. As a consequence, offshore While these short-term market leading turbine manufacturers focus wind projects have to a large extent conditions are driving a buyer’s market on the manufacture of turbines, been employing technologies, processes and re-composition of turbine supply, blades and towers, outsourcing the and business models adapted from the long-term growth fundamentals remaining components. A few of the onshore industry, rather than remain: the global turbine supply chain the market participants are present designed for the very different offshore will need to transform and ramp up in manufacturing generators and marine construction and operations drastically to support the development controllers, and just a couple produce environment. The turbine supply chain of 40 GW of offshore wind power drive trains as well. This panorama is needs to transform and, indeed, will be capacity licensed by the UK Crown likely to change with the emergence transformed, by the order of magnitude Estate33, alongside similar levels of of mega-projects, which could prompt changes in turbine demand that mega- expected growth in other regions more integration across the value chain projects will bring about. including the United States, China and and possibly further down into the substructures (e.g., with a move towards floating substructures) and grid- connection segments.

21 Scope for better economics capture. Reliability and predictive example. On the other hand, some of maintenance will be essential in the usual constraints of the onshore from the turbine supply managing offshore operation and wind industry such as noise and visual chain maintenance costs—a majority of all impact can become less important in offshore maintenance is unscheduled the offshore environment, providing Achieving significant cost reductions corrective maintenance. Performance, opportunities for technology innovation. and revenue improvements or having reliability and predictive maintenance all a clear line of sight to how these will start with turbine design. There is a general consensus that be achieved in coming years is vital to significant technology development is the entire offshore wind industry. With Turbine components and still needed to shift project economics the business cases for mega-projects technology to attract investors. However, the currently so dependent on government technology departments of the leading Most of the technology currently being support, the promise of better project turbine manufacturers still focus used in existing offshore wind farms economics is the crucial component to predominantly on onshore technology, is technology that has been adapted attract investments at the scale required as onshore wind still represents the from the onshore industry, rather than to develop them. lion’s share of the turbine market. This technology designed specifically for technology bottleneck is one of the key offshore applications. The offshore turbine, its components obstacles that needs to be overcome, and structure represent about 50 to and we believe will be, with the 34 This technology is being increasingly 80 percent of offshore wind costs emergence of mega-projects. and a holistic approach must be taken challenged as wind farm projects tend to go further offshore where to significantly reduce costs. Primary Our research has found that better there are increased water depths and drivers for cost reduction and greater economics for project developers and wind speeds. To maximize energy efficiency include bespoke offshore operators may be delivered through capture, turbine sizes are getting design, optimisation of manufacturing technology improvements across ever larger, 6 MW models are already and improved logistics. three main areas: reducing capital commercially available. But bigger is costs through production streamlining not always better: greater size can In addition to reducing the costs of of components, lower operating create reliability and logistics issues, an installed turbine, better economics costs through increased reliability some of which can be partially offset in turbine operations will also be key. and predictive maintenance, and by by reducing the size and weight of Scale, better design and new component increasing revenues through greater some components—swapping gearboxes technologies will increase energy energy capture. for direct drive units is one such

Figure 8. Vertical integration of leading turbine manufacturers.

Drive train Grid Turbines Rotor blades (gearboxes/ GeneratorsControllers Towers Substructures connection* direct)

Enercon

Gamesa

GE Energy

Nordex

Siemens Wind

Suzlon

Vestas

Presence in specific stage of turbine supply chain Direct drive drive-trains

*Grid connection: Infrastructure service to provide physical connection between wind farm and grid.

Source: Accenture analysis.

22 Figure 9 illustrates the turbine the final investment decision. This components where technological approach would help reduce the developments may improve project risks associated with pre-orders of economics through lower costs or components that have substantial lead improved revenues. times. Indeed, lead times for turbines remain one of the longest in offshore Logistics wind procurement, often taking two Installing an offshore wind farm years or more. Suppliers on the other requires the transport and handling of hand, promote a different approach and multiple components that are typically look for joint commitments and gradual/ very large, very heavy, but also very parallel development of consent and fragile. As is the case regarding the engineering, manufacturing capacity, technologies of the turbines themselves, financial investment decision and the logistics of offshore wind turbines ordering. The contrasting approaches have been so far largely borrowed from to project development and the the onshore wind industry, but also contractual practices currently in place from oil and gas offshore operations, create a supply crunch at the time of usually involving high costs and time the final investment decision, when constraints due to the limited supply of components are effectively ordered. specialised vehicles and vessels. New Inevitably, the response from the supply technologies, processes and coastal chain is lagged, resulting in shortage locations that allow for the complete and delays. production of floating turbines at or The industry therefore finds itself in a near ports, or the efficient assembly of situation of stalemate, with the supply turbines at sea could deliver dramatic and demand sides of the supply chain cost and time reductions. each expecting its counterpart to Cooperation and contracting undertake higher risk, investment and provide greater assurance in order to The development of the turbine move the industry forward. Breaking this supply chain remains uncoordinated, gridlock, and crucially, achieving greater with unbalanced risk sharing and integration and alignment of the supply- fragmented, nonstandardised and demand-side business objectives contracting practices prevailing among will likely require greater communication key value chain actors including and collaboration, innovative risk- developers, suppliers and government. sharing and standardisation in contracting approaches, and exploring On the one hand, developers generally and developing opportunities agree that without pre-orders, the for supply chain rationalisation. supply chain will not develop and Government and business services production capacity is unlikely to firms should investigate new ways expand. But pre-orders are costly and to further facilitate and broker this risky, meaning developers may choose to enhanced level of cooperation (see wait until an adequate and sustainable next section on Regulation). turbine supply chain is in place before

23 Figure 9. Wind turbine components and potential scope for cost and revenue improvement.

Lower capital costs through Lower operational costs through Greater revenues through higher component production increased reliability and predictive wind energy capture streamlining maintenance

Blade technology

Improved structural design

Improved aerodynamic design

Standardisation of gearboxes

Direct/hybrid drive transmission

Lower-speed generators

Second-generation substructures

Greater use of HVDC connectivity

Source: Accenture analysis.

24 Case study Forewind

Company overview the economics work will be a crucial sign cancellation securities that are element in attracting investments of updated bi-annually. These cancellation Forewind is an incorporated joint that magnitude. If Forewind can manage securities represent large sums that are venture made up of four leading to keep costs down and demonstrate a released and lost to the grid operator international energy companies (SSE, sound business case, the consortium will if the developer fails to fulfil its RWE, Statoil and Statkraft). In January also be an attractive investment. engagements. These sums increase as 2010, Forewind was awarded the the date of commissioning approaches development rights for Dogger Bank, Keeping costs down is one of the key and, in the case of gigawatt-scale which is the largest planned offshore challenges faced by the offshore wind projects, billions of pounds have to wind farm in the world. industry today, with the turbine supply be secured by the developer to ensure chain and vessel contracting standing grid connectivity. These cancellation In accordance with the development out as the main cost components securities represent a large risk for contract, Forewind is committed to of the capital expenditure phase. To developers, especially since these are carry out a work programme to prepare remain competitive for future funding, important sums that need to be put on the projects for consent. Each of the the industry must prove it has line of the table prior to investment decision. partners is scheduled to invest some sight to achieving profitability without £40 million in implementing the work support from the taxpayer. This poses a Governmental bodies need to be programme. Forewind is responsible for: key question: How long will government more aligned to reduce risk in grid support be realistically maintained if the connection process. To make the • Developing projects. cost of installing offshore turbines fails industry sustainable, it is required • Obtaining agreement for leases. to reduce below the currently observed to shift away from the current levels of £2 million to £3 million/MW? model where developers carry • Achieving all key consents. the entirety of the risk from grid Today, developers carry the majority Due to the very large size of the Dogger connection cancellation securities. of the risk in the early phase of Bank area, any development has to be development. Other key stakeholders made in phases, with several projects Improving the health, safety and in the sector, including electricity comprising the project tranches of environment (HSE) performance grid operators and the government, each phase. The objective is to achieve Health and safety risks in the offshore should take on a greater share of consent for the agreed target of 9G W wind industry have proven to be the construction risk to increase the of installed capacity by 2020, although very real and its health, safety and attractiveness of the industry to more the zone has a total capacity of almost environmental (HSE) performance needs investors and developers. For this shift 13 GW, or around 10 percent of the UK’s to improve. The industry in general in risk-sharing to materialise, however, projected electricity requirements. is getting increasingly more focused the industry must start to demonstrate on the health and safety issues, and The investment decision will be a trend of improving its cost efficiency. Forewind aims at being an industry taken by late 2014, after which the leader in this field. wind farms would be developed and Reducing the costs of securing maintained by various constellations connectivity to the power grid Apart from surveys and metocean of the parent companies and any One of the most crucial issues for mast installation, early developers have additional future partners. companies in the early development very limited experience of the complex stage relates to the investment environment that is marine offshore Business challenges required to establish the necessary operations. Substantial health and grid reinforcements that will secure safety risks exist in the installation Construction cost reductions adequate grid connection capacity for as well as in the operation and and better risk sharing: key the planned maximum output of the maintenance phases of a project, with components to make the offshore wind project. the most severe risks stemming from economics work access to and egress from the turbines. At present, the government does not Both vessels and helicopters are part To develop and install the 9 GW require grid reinforcements. Rather, of construction and maintenance of Forewind’s planned capacity, reinforcements and grid connection operations. The risk profile can be investments in the region of £40 take place through bilateral agreements significantly reduced by minimising the billion will be required. According to between National Grid and developers number of required onsite visits through Björn Ivar Bergemo, head of business such as Forewind. The developer must higher reliability of plant and kit. management at Forewind, proving that

25 Forewind will include several options Developing a sustainable supply Key lessons learned for operation and maintenance strategy chain A green light for any gigawatt-scale in the consent applications, leaving If the UKI planned offshore wind the final decision to the future site project will be a game changer for capacity is to be built between 2015 the offshore wind industry. Projects operator. Forewind believes that and 2022 a construction rate of safe operations and maintenance with planned capacities in excess one turbine per day will be required. of 1 GW such as Forewind are of a are obtained by jointly managing Today, the offshore wind turbine technology, mindsets and people. completely different nature relative supply chain is far from being able to the much smaller existing offshore to meet such demand levels. Environmental risks and issues are wind projects. Forewind expects that mature manufacturers will step up well covered by work performed for Supply chain capacity must increase and secure a sustainable supply chain consent applications. These studies also without the requirement of pre-orders. or risk seeing investors and operators represent an important cost element. Carrying the full risk of securing walk away. The current issues regarding The Environmental Impact Assessment is sufficient component capacity and turbine manufacture lead times are thus one of the key deliveries of the consent pre-orders prior to final investment expected to be solved by key suppliers. application and includes data gathering decision puts a significant amount of by vessel and airplane and thorough pressure on developers. To benefit from analysis. The environmental statement Technology choice is not as much of an the potential growth opportunities issue as there are only a few suppliers covers all environmental issues as in this market, investment from well meaning that, for the future lead who could support a gigawatt-scale suppliers will be a key element to project. However, new technologies will operator, health and safety will be building a sustainable supply chain. relatively more important focus areas get folded in, probably through mergers and acquisitions (M&A). than environment. Forewind believes that consent application could be made more Health and safety represent substantial According to Forewind’s health and flexible through the approval of safety manager, the offshore wind issues for the industry and knowledge various concepts that the lead transfer from oil and gas and regulations industry has much to learn from the operator could evaluate and select oil and gas industry in regard to health are required, but environmental from, thereby increasing the scope of issues are of less concern as they are and safety. Compared to the oil and gas options with respect to technology industry there are, for example, obvious handled thoroughly within the consent and design. This would serve to application process. gaps in offshore wind regulation, stimulate competition, innovation and perhaps due to the nascent nature of cost reduction by suppliers. However, the offshore wind industry. Regulations such an approach would also have are fundamental in establishing a negative implications for the lead cross-industry standard that serves to times of component manufacture adequately mitigate health and safety as well as supply chain capacities. risks. The offshore wind industry should leverage on the developed principles Securing the right talent from oil and gas. For example, in the In the initial development phase, North Sea, knowledge sharing around competition for human resources leading practices and incidents within with the oil and gas industry has been the industry has been very successful limited, and actually less than what through the years and remains so today. was initially expected. Rather, the more Risks are lower in the wind industry in important resource issues have been the sense that the type of machinery, related to attracting the right talent plants and components used to build to the industry as a whole, and having and operate wind farms has technical sufficient time to train staff. characteristics that are unlikely to cause major catastrophes, such as spills or Scalability as a key determinant of large-scale explosions. On the other technology selection hand, the risks linked to installation, Offshore wind turbine technology is operation and maintenance at large evolving rapidly and it is anticipated heights and/or in open waters are very that turbines with capacities up to similar and in some aspects greater 10 MW may be available within the (e.g., presence of fast-moving turbine timescales of the first Forewind projects blades for helicopter operations) on the Dogger Bank. than in the oil and gas industry. Knowledge sharing and transfer Forewind believes that the scalability from the offshore energy industry of any given technology will be would be very beneficial in improving crucial and small players will be health and safety performance able to grow quickly, provided in the offshore wind industry. they have the right technology with the adequate scalability.

26 2.2 Vessel contracting

A considerable share of the vessels approximately two years to complete and afford the expensive mobilisations to bring contracted for offshore substructures and requiring a significant investment, upward these vessels in from other regions when turbine installation have been adapted of £100 million. Many developers expect faced with supply constraints. Offshore from the oil and gas industry. Vessels are manufacturers to build capacity without construction day rates for high-end used across all phases of the offshore confirmed contracts; however, investors vessels can exceed £335,000/day and campaign, but there is particularly are reluctant to commit capital without inter-region mobilisations are often in high competition for those necessary a guarantee of potential profits. This excess of £13 million/mobilisation. While during installation, including heavy stalemate between developers and vessel these prices are within budget for large lift vessels, pipe/cable-laying vessels suppliers, which is akin to the situation oil and gas projects, they are typically and transportation vessels. There are with turbine manufacturers discussed in excessive for the smaller offshore wind approximately 675 vessels designed for Section 2.1, causes delays in new vessel project budgets. Therefore, offshore wind the oil and gas industry, many of which availability, which ultimately affects projects are often left with two options— are directly transferable to offshore wind. project performance and profitability. utilize the few specifically designed However, as oil and gas projects rebuild Therefore, many developers are assuming offshore wind vessels available on the momentum and decommissioning in the the risk up front and confirming contracts market or convert the older oil and gas North Sea continues, the offshore wind before final investment decision and vessels that are no longer active. Both industry faces strong competition and in the midst of funding challenges. If options involve supply constraints in the is experiencing a shortage of vessels. developers are unwilling to assume this tight market. Additionally, using older, Additionally, the requirements for risk, particularly when dealing with mega- cheaper vessels may increase HSE risks offshore wind vessels have evolved to projects, then governmental support and, to some extent, environmental risks. become more stringent and industry- might be necessary to avert cancellation Ultimately, for vessels, as in many other specific to address the unique challenges of the project. The European Wind Energy segments of the offshore wind industry, posed by complicated access and egress. Association (EWEA) is projecting that £1.7 the uncertainty and lack of definitive Accordingly, the supply shortage and billion investment in ships will be needed funding is causing a supply constraint that changing requirements have led to the to provide for the predicted growth may result in delayed project schedules. commissioning of dedicated installation of offshore wind farms35. Although A common understanding of the future vessels. More than 20 specialised specialised ships are being commissioned, of the industry and its profitability is installation vessels are projected to be it is unclear how many will actually necessary for the vessel suppliers to make deployed to the offshore wind market materialise and whether or not they will a dedicated commitment to the offshore by 2013, which will likely put downward satisfy market demand. wind market. Figure 10 presents some of pressure on day rates and accelerate the main companies supplying vessels to the retirement of less-qualified vessels. Funding challenges also present HSE the offshore wind industry. However, developers currently face issues related to vessel contracting. When security of supply risks that drive the need early developers do not have enough for further investment. funding to invest in new or high-quality vessels to conduct offshore surveys, and Developers and vessel manufacturers install metocean masts and wind buoys, acknowledge the need for vessels that health and safety issues may become more are optimised for offshore wind farms; prevalent. Many offshore wind developers however, such high-spec vessels are cannot afford the high day rates of top- complex and difficult to build, taking end oil and gas vessels and likely cannot

27 Figure 10. Vessel suppliers to the offshore wind industry.

CompanyCountry Service description Marine contractors GeoSea (part of DEME)Belgium Wind farm construction Scaldis (part of DEME)Belgium Place foundation, transformers, install wind turbine Seaway Heavy Lift Cyprus Wind farm installation A2SeaDenmark Transport, foundation installation, turbine installation Swire Blue OceanDenmark Foundation and turbine installation HGO Infrasea Solution Germany/ Provide heavy-lift vessel and offshore logistic solution Belgium (owned by Hochtief and DEME) BARD GermanyDevelop, manufacture and construct offshore wind farm Hochtief GermanyOffer foundation installation through Hochtief solution Muhibbah marine GermanyWind farm installation Ballast NedamNetherlandDesign and build wind farm Heerema Fabrication GroupNetherlandEngineering and fabrication of offshore wind farm Jack up Barges BV Netherland Installation of rotor, blades Jumbo Shipping Netherland Wind turbine transition piece installation Smit Netherland Heavy lift and transport turbine foundation EIDE Marine ServiceNorwayOffshore wind turbine installation Fred Olsen Energy Norway Through its subsidiary Harland and Wolff to design and build offshore foundation, substation, install turbines Inwind Norway Survey, transport and install turbine, foundation, substation Master Marine Norway Wind farm installation Fugro SeacoreUKSite investigation, foundation installation GOAH Offshore UK Transport and install turbine, foundation MPI Offshore UK Install foundation, turbine transformer, array cabling, transport and project management SeaEnergy UK Wind farm access, operations and maintenance services Sea JacksUKWind farm installation Subsea 7UKCable installation, foundation and substation construction Cable installers CT Offshore DenmarkSubsea cable installation NKT CableDenmark Turnkey solution for wind farm including cable installation Nexans France Turnkey solution for wind farm including cable installation TechnipFranceSubsea cable installation (Acquired SubOcean in 08/2011) Siem Offshore Contractor GermanySubmarine cable installation, repair and maintenance Prysmian ItalyTurnkey solution for wind farm including cable installation Visser & Smit Netherland Leading power cable installation contractors in Europe Aker Solution Norway Solution for subsea power distribution for offshore wind ABBSwitzerland Cable manufacturer and installer Briggs Marine UK Turnkey solutions for subsea cable installations Global Marine UK Provider of submarine cable installation, maintenance and related engineering services worldwide Subsea 7UKCable installation, foundation and substation construction

Sources: “Wind in our Sails: The coming of Europe’s offshore wind energy industry”, European Wind Energy Association, 2011 www.ewea.org/fileadmin/ewea_documents/ documents/publications/reports/23420_Offshore_report_web.pdf., © EWEA; Accenture analysis.

28 Case Study SeaEnergy PLC

Company overview Business challenges • Ship wind turbine sub-assemblies and assemble offshore: This option is less SeaEnergy PLC is a public limited Offshore wind should embrace efficient, as it involves more risky and company, and its subsidiaries form an the lessons learned in other expensive offshore hours, but is how the energy services group, headquartered in offshore technologies to industry is currently operating in most Aberdeen, Scotland. It has a heritage of develop its own solutions cases. Again, significant development in combining oil and gas and renewables, The offshore wind industry is currently ports would be required, but this may and has operated as project developer characterised by a series of traits that be dispersed among a number of ports and service provider in both sectors. need to evolve for it to be successful at with each potentially specialising in The group is currently establishing scale. These traits include appropriate limited aspects of the supply chain (e.g., an offshore energy services business, build/install strategies, floating turbines, cables, blades, towers, etc.). In this case, which aims to provide access and other reducing cycle time, use of purpose- fewer bespoke vessels might be required, services to the expanding offshore wind built assets, supply chain involvement leading to a lower risk to vessel owners industry as well as to other offshore and cultural issues. as vessels can be multipurpose and for energy clients, and also holds a number developers as alternative vessels are of investments in oil and gas. Many of the existing practices and available if required. technologies being applied to offshore SeaEnergy will provide operations wind projects today are basically The selection of build strategy will and maintenance services to offshore onshore wind solutions that have been be determined by the economics wind farms, and the vessels from ‘marinised’. SeaEnergy recognises that of alternatives, together with an which to provide these services. new and bespoke turbine technologies, assessment of the risks implicit in each Its state-of-the-art vessels and logistics and supply chains and possible approach. other assets for offshore wind farm operational attitudes are required for commissioning, operations and the large-scale deployment of offshore Floating turbines maintenance will help developers reduce wind to be successful. Floating turbines are likely to be an costs and increase safety through: important aspect of the longer-term way forward. Installation requires • Integration of proven leading Alternative build/install fewer specialist vessels and less- technologies. strategies—lessons from oil and gas dedicated equipment; consequently, logistics are simpler and the risks • Co-location of access, Two options for turbine manufacture associated with these elements accommodation and work functions. and construction represent the ends of a of project implementation may spectrum of strategic possibilities: • Reducing fleet numbers by using be reduced. Development of such multipurpose vessels. • Assemble turbines close to shore technology would facilitate worldwide and ship fully assembled units: The rollout of offshore wind as water • Purpose design and build for support experience in the oil and gas industry depth is no longer a limitation. throughout the wind farm life cycle. suggests this is the preferred option, given the complexity of construction Reducing cycle time – lessons • 24/7 long-term deployment in the planning and work in the marine from lean manufacture field. environment, especially when multiple Independently of the construction • Minimising cycle time for safe units are involved, as expensive strategy, turbines need to be efficient working at multiple sites. and higher-risk offshore hours are designed for offshore construction. minimised. Significant development in The dispersed multiunit nature of Accenture interviewed John Aldersey- ports and bespoke vessels would be wind farms means that minimising Williams (CEO) and Mike Comerford required to support this more efficient cycle time for installation and (technical director) from SeaEnergy PLC offshore operation. In addition, some commissioning and operations and around the challenges and opportunities development of turbine designs will maintenance (O&M) is vital. facing the offshore wind industry in the be required to make them tolerant of UK and elsewhere. the requirements of the integrated installation approach.

29 An efficient manufacturer such as a the UK or elsewhere in Europe. In turn, But the appetite for building highly Japanese automaker would examine the this requires relationships to develop specialised vessels critically depends manufacturing process and minimise and improve, as well as maturity and on the availability of finance. This can the number of assembly steps. For incentives for quality across the supply lead vessel operators to ‘dilute’ their this to happen in wind farms, an chain. In particular, there is a need to ideal bespoke design and/or incorporate end-to-end design and construction build trust and longer-term commitment features (which broaden the vessel’s process needs to be considered, at both ends of the supply chain. capability but increase its cost and bringing together manufacture, required day rate) in order to be able to logistics, construction and operations Utilities and developers need to shift secure finance. and maintenance considerations focus from the cost/MW installed to into the design. The introduction the cost/MWh generated. Contracting To be able to move away from this of automated process for turbine practices will need to change. model, developers need to better apply and foundation assembly, and the Longer-term relationships need to be the difference between price and value standardisation of components would established: some continental utilities and to encourage the development of a also enhance buildability and quality, have a practice to sacrifice short-term clear and secure pipeline of future work. reduce cost, errors and cycle time. margins for longer-term returns, the There is a big difference between the industry could certainly do more of this. price to deliver a project—determined by Right now, every supplier has their own the cost of project equipment and/or the design and there are few offshore- A significant challenge for the offshore total cost per installed MW of capacity, specific solutions. However, for wind industry will be how to transfer and the value of that project, measured investments in automation to happen, the skills and capabilities developed in terms of £/MWh of power generated manufacturers require line of sight of in the oil and gas sector into the over the project life cycle. At present, long-term turbine demand. renewables sector. Companies such the emphasis is frequently on minimising as SeaEnergy, with a heritage in both the cost of individual project elements Cable installation – importance of oil and gas and renewables, are well (such as installation vessel day rates), purpose-built vessels positioned to facilitate this transfer. when a more holistic view focused Another issue is that there is frequently on maximising the project life-cycle Cultural barriers cable damage during installation, value would be better. It can be very often because the cable installation Industry culture is also a potential expensive doing things the cheap way. vessels are not purpose designed. barrier, as evidenced by resistance from When transatlantic cables were being utilities and wind companies to embrace Improving HSE deployed, purpose-built cable ships were the offshore experience of oil and gas High safety performance is achieved by used and cable was manufactured and companies. Barriers need to be broken being in control, just like good business loaded directly onto these ships in an to build trust between manufacturers, is about being in control. This requires integrated way. If a similar approach developers and oil and gas companies. planning, resourcing, monitoring and was adopted for offshore wind, executing according to plan. At the integrating manufacture, loading and Using purpose-designed moment, safety in offshore wind is installation of cables with purpose-built similar to how it was in the oil and gas equipment, lower-cost and higher- vessels to improve project industry in the 1970s—with an unclear reliability installations would result. performance and unintegrated safety regime and Supply chain involvement Industry sources suggest that inadequate safety behaviours. HSE has the chartering of installation to be the responsibility of the operator All of the previously mentioned vessels typically comprises about who formally becomes the duty holder, improvements require collaboration with 2 percent of project capital and has full responsibility for health and and within the supply chain. The existing expenditure. But the influence of safety management and outcomes. industry supply chain is not ideally the installation vessel performance configured for large offshore projects, on project outcomes is huge. Another stumbling block is lack of and developing a well-functioning clarity: it is not always clear who is supply chain will require good The use of purpose-designed vessels regulating offshore wind. The industry international coordination. Important can deliver very significant schedule as a whole needs to move from a ‘what manufacturing facilities are already advantages, thereby more than can we get away with’ mode to a ‘what in place in Germany and Denmark, so offsetting its additional cost. With should we be doing’ mode. This is partly there is potential to scale up capacity a purpose-designed vessel, initial due to the lack of regulatory clarity. in locations there, where supply chain CAPEX (capital expenditures) and An integrated and clearly-defined HSE and shipping capability already exist, day rates may be higher, but the regime for offshore wind would be although the scale of the opportunity likelihood of overruns will be lower good for business. The North Sea oil means that there is also potential for and the project returns both higher and gas industry helped to develop and new, purpose-built and optimised and less subject to schedule risk. embraced the offshore installations manufacturing capacity to be built in (Safety Case) regulations. Safety Case

30 31 regulations essentially boil down to Key lessons learned one simple regulation: ‘avoid major accidents (such as hydrocarbon spills SeaEnergy believes the two main or fatalities) or face prosecution and messages for the offshore wind industry almost inevitable legal penalties’. People are: understand that they are on the hook for the risks and set out to manage them. 1. The industry needs to think about the In offshore wind, there is really no need right problems at the right scale. These for a complete new set of regulations, include developing an adequate supply just an application of safety case chain, changing contracting practices, regulations for offshore wind. Currently, embracing holistic HSE practice, and construction design management only working with all actors across the applies to construction phase. Safety value chain to produce better offshore- Case should be applicable to the entire specific solutions. wind farm life span. 2. The industry can learn from the experience of those industries that have Regulations and incentives had to deal with similar problems in The fact that offshore wind is being the past. Candidate areas for skills and developed suggests that the regulatory capability transfer include substructure and incentive framework is working, technology, venturing, contracting and but it could be improved. For example, risk sharing, and HSE management. ROCs under the Renewables Obligation are noncontractual credits, which makes financing difficult. This is especially true for companies with small balance sheets. Feed-in-tariffs would make financing much easier, as project revenues will be viewed by financiers as bankable.

The consenting process for offshore wind farms remains long and torturous and should be streamlined. The recent reorganisation of the marine management agencies has not so far helped, as the structural changes have not been matched with capacity, making them a slow regulatory body. Intermittency management The market should decide which choice is best for backing up the intermittency of offshore wind output. The grid and market players will have to learn to accommodate intermittency.

32 2.3 Development and HSE: Leveraging the experience of offshore oil and gas

The open ocean is a challenging In recent years, the extensive project conferences focused on collaboration environment in which to gain delays, cost overruns and higher HSE provide another example of how the experience. Successful operation incident rates than in equivalent oil offshore wind industry is looking to take offshore is highly dependent on the and gas fields quite clearly suggest that successful initiatives from oil and gas ability to execute projects on time, on onshore wind experience is not directly and adapt them to close the experience budget and safely. However, the safe transferrable offshore. The challenges and performance gap. execution of projects is an area that presented by the North Sea’s difficult has been a concern for the industry environment present a threat to the RenewableUK lists ‘construction’ as it has expanded. With rapid growth execution of on-time, on-budget and and ‘offshore’ as two of the focus comes the need for fast increases in incident-free projects. While leading areas for improvement in HSE for the experience and expertise. Yet acquiring practice project management and renewable energy industry39 noting experience requires time, something increased experience will help with cost that ‘a significant proportion of the that, considering the planned ramp-up and schedule, developing a safe work incidents recorded occurred during in capacity build, the offshore wind environment is more difficult. Accenture the construction phase of wind farm industry does not have too much of. research and interviews with industry developments’ and that ‘the experience Fortunately, many of the skills and executives suggests that the offshore of incidents offshore highlights the safety practices necessary to operate wind industry has a performance gap logistical complexity of remedial actions offshore were developed through a when it comes to HSE-related incidents available to offshore wind industry in long, arduous and costly process by and fatalities.37 that environment’. However, further the oil and gas industry over the last compounding the issue of inherent HSE 40 plus years. Several years of lost- Comparing the track records of offshore risks in the industry is the significant time incidents and heavy project cost wind with offshore oil and gas is not capacity and skills shortage from overruns are experiences the offshore a fair contest. The modern-day oil and offshore field development suppliers. As wind industry should do its best to gas industry has millions of man- offshore wind projects become larger avoid. The fast-tracked timeline to have hours of experience, and thousands of in size and more technically complex, 18 GW of offshore wind generation lessons learned supporting its safety the number of dedicated offshore wind by 202036 does not grant developers culture. The offshore wind industry suppliers capable of executing the work much time to become a mature, safe has started to pay more attention to is becoming smaller. and stable industry. Growing the HSE as it hopes to grow into a healthy industry from a small, government- and mature industry. RenewableUK’s Fortunately for the offshore wind subsidised effort into a large-scale, ‘Lessons Learned Database’, launched industry and for many oilfield services reliable source of renewable energy in 200638, is an example of how the (OFS) providers currently operating in will require quick thinking and the industry has matured significantly over a declining North Sea market, there is adoption and transposition of valuable the past years and has helped to foster a significant overlap between offshore lessons learned from those that collaborative work environment among operations in oil and gas and in wind. have been there before: the pioneers offshore wind development companies. While the source of energy generation of offshore energy—oil and gas. In addition, industry-specific HSE may not be the same, there exist many

33 similarities in the types of services by Accenture43, 36 companies, partnerships with project developers. required for project execution. Offshore organisations and institutions involved Both Technip and Subsea 7 have signed wind projects will require service in either offshore wind or offshore oil Memoranda of Understanding (MOU) capabilities from third-party suppliers and gas operations were surveyed to with major utilities in Europe (Technip ranging from front-end engineering better understand the potential for with the Spanish utility Iberdrola,44 and design through to installation, transferability of oil and gas experiences Subsea 7 with Scottish and Southern connection and commissioning. Many into offshore wind. The results of this Energy [SSE]45). OFS providers have recognised this survey show a significant industry trend potential and have begun moving into of adopting offshore wind as a strong These partnerships are strategic efforts offshore wind through merger and future revenue source. More than three- to bring together skills from the two acquisition (M&A) activity, building their quarters of respondents said that oil main industries that compose offshore own internal renewables division, or a and gas experience was transferrable wind—i.e., onshore wind and offshore combination of the two. to offshore wind. In addition, when oil and gas. By utilising each partner’s questioned about project phases, respective skills, these alliances seek to Although there are suppliers specifically the design, construction, operation “develop offshore wind projects in the geared to handle the needs of the and decommissioning phases all had most cost-effective and safe manner.”46 offshore wind industry, many of these more than 60 percent of respondents If all parties involved get their way, niche contractors lack the experience indicating a direct transferability of the experience and knowledge learned or capacity to handle the growth in skills between the two industries. from more than 40 years of energy size and complexity of the Round 3 Offshore wind has the potential to production in the North Sea will play projects. These projects are forecast significantly benefit from the declining a strong role in shaping the future for to include the installation of some 32 asset base occurring in the North Sea, offshore wind. GW of new generation across nine as the shift towards more technically different zones40 compared to the challenging projects is requiring a step combined 8.2 GW in Round 1 and Round change in skills. 2. Additionally, Round 3 projects are located in deeper and more complex Players taking note of the growing environments, requiring a greater degree offshore wind market are not confined of technical expertise. It is this push to OFS providers. The city of Aberdeen further offshore into deeper waters has embraced the transformation of and harsher sea conditions that has its offshore industry from hydrocarbon led project developers to look to OFS exploration to wind generation, and providers for their technical capability has taken steps to ensure it is at the and previous project experience. forefront of development. Since 2001, Additionally, as projects grow in size the Aberdeen Renewable Energy Group and complexity, so do their costs. (AREG) has been active in encouraging Round 3 projects are forecast to cost the development of renewable energy more than £1 billion, with some zones projects. AREG is an incorporated targeted to exceed £10 billion41. In company of more than 160 members, short, the significance of Round 3 is and has been working for more than high: Round 3 offshore wind energy is 10 years to ensure Aberdeen plays targeted to deliver 25 percent of the a major role in its shift from being UK’s total energy needs by 202042. a hydrocarbon energy centre to a The shift towards increased spend on renewable energy centre. larger projects in more challenging environments, combined with AREG and its joint venture partners, decreasing North Sea assets, has drawn Technip and Vattenfall, have been the attention of various sides of the oil working towards the development of the and gas industry. Traditional suppliers, European Offshore Wind Deployment operators and entire cities have Centre (EOWDC), to be located in recognised the opportunity to capitalise Aberdeen Bay. Using its existing position on their own offshore experience and as a leader in marine engineering, move into this new, rapidly growing Aberdeen hopes the EOWDC will and potentially lucrative market. produce substantial benefits for offshore wind development leading Oil and gas experience may represent to cost reduction and risk mitigation the key partner required to take through reliability and capability offshore wind to the next level of testing. Additionally, OFS providers have self-sufficient operations. In a 2011 begun to penetrate the market not only survey conducted by Aberdeen’s Robert through direct translation of current Gordon University and commissioned capabilities, but also through innovative

34 Case Study Offshore wind: A perspective from oilfield services companies

Oilfield services, also known as • Acquired all of the assets of Subocean • In 2011, it created an alliance with engineering, procurement, construction, Group, boosting Technip’s cable SSE Renewables Developments2, the maintenance (EPCM), services or installation capabilities. Technip acquired renewables arm of UK utility Scottish turnkey contracting, are a global almost 300 staff, some land-based and Southern Energy (SSE). The two industry that has several decades of assets and also significant ongoing companies and other partners will experience of designing, constructing contracts and contracts in backlog, work to develop and execute offshore and operating in the difficult offshore growing its scope in offshore wind. wind developments—a potential marine environment. It is no surprise portfolio of projects generating more then that many of these companies • Headquartered its European offshore than 5,500 MW of electricity from are expanding into the offshore wind wind business in Aberdeen, which will offshore UK wind farms. Subsea sector, given the scope for transferable be used as an engineering centre of 7’s work scope involves all marine experience and capabilities. excellence to support UK and European operations and integrated installation offshore wind projects. The centre of of the total offshore infrastructure Examples of oilfield excellence project is in partnership including, turbines, offshore substation, with Vattenfall and AREG (Aberdeen foundations and cabling. services and EPCM Renewable Energy Group), which is companies entering the proposing the installation of up to 11 Neptune new generation offshore wind turbines. Neptune serves clients in the renewable offshore wind industry energy industry with customised • Signed a memorandum of fabrication solutions across the areas of Accenture surveyed publicly available understanding with Iberdrola (offshore construction design, general engineering information about global oilfield wind business based in Glasgow) to and welding services. Neptune’s services companies as well as some of develop farms off the French west coast. the key players operating in the North Aberdeen-based offshore division, from Sea to assess their involvement in the • Installed one of the world’s first full- which it services clients in the North offshore wind industry. This review scale offshore floating wind turbines, Sea and European markets, bills itself as confirms that oilfield services companies ‘Hywind’ for Statoil, building and ‘the industry leader for the development are growing or looking to grow their installing in Finland the world’s first of marine renewable energy projects offerings to the nascent offshore wind gravity-based, ice-resistant foundation. in the areas of wave and tidal systems industry, especially in Europe. Following and offshore wind projects’3. is a nonexhaustive list of examples of • Launched the Vertwind project, how oilfield services companies are an association between Technip, Fluor increasingly looking to offshore wind as Nénuphar, Converteam and EDF Fluor offers services for renewable an area of growth. Energies Nouvelles to test a energy projects that range from preindustrial prototype of a vertical- conceptual design to final completion, Technip axis offshore floating wind turbine. with renewable energy project In August 2011, Technip officially development experience including launched its offshore wind business, Subsea 7 engineering, procurement, construction, adding a fourth domain to its core • Subsea7 has a dedicated renewables plant technology integration, business. The new business carries energy business that provides project program management, operations and out operational installation and management, engineering and maintenance, and commissioning4. Fluor cable installation. As part of this construction services to the offshore provided engineering, procurement, and new business, Technip have already renewables industry1. construction (EPC) services to Greater undertaken several new initiatives: Gabbard Offshore Winds Limited for a 500-MW offshore wind farm off the Suffolk coast of the United Kingdom, which when complete, will be the world’s largest offshore wind farm5.

35 Petrofac Competition for resources with The treatment of risk, particularly Petrofac is developing its capability the oil and gas industry weather risk, in contracting is another to offer services into the European Offshore wind is a less mature industry area where the offshore wind industry offshore wind sector. Following the than offshore oil and gas and with could incorporate learnings from its acquisition of renewables sector less financial backing, yet it needs oil and gas counterparts. In oil and technical specialist TNEI, PetroFac’s to compete with oil and gas in order gas, risks such as weather or other CEO said: ‘Petrofac intends to build to conduct operations. Specifically, installation risks are shared between a position in the renewable energy offshore wind projects are competing the oilfield service provider and the oil sector and our existing technical with oil and gas projects to attract company. The preference of utilities consulting, offshore engineering, project the same types of engineers, project seems to be for the oilfield service management and operational skills managers, vessels and suppliers. provider to bear all of the risk. Without provide a strong base from which to Oil and gas is a lucrative and well- large insurance provisions, this is enter this rapidly developing market. The practised industry, so to some, it unlikely to be possible. addition of TNEI’s technical capabilities is a more attractive opportunity. enhances Petrofac’s ability to serve the In contrast, there is less work, less Growth and investment timing wind renewables sector.’6 funding and more risks involved in In offshore wind, it is difficult to offshore wind, making it difficult to forecast future work. In considering the Petrofac has worked with TenneT allure new suppliers or workers. potential acquisition of a new vessel to deliver planning and engineering for offshore installation, a contractor support, followed by maintenance Contracting faces high costs (a new vessel is likely and support services in the German Contracting approaches need to mature to cost €250 million), and uncertainty 7 North Sea . Petrofac has worked with in order to drive offshore wind forward. (vessel may not have the necessary TenneT throughout the development In oil and gas, there are fairly standard capabilities, e.g., to reach a depth of and pre-operations of the BorWin contracting templates for types of work below 50 metres). Companies may alpha platform, initially providing that are then modified on a case-by- then choose to wait until they win an operations planning support, including case basis. This means that the scope order to decide what type of vessel to training requirements and health, and activity negotiation does not start purchase; conversely, not having the safety and environment directives. from scratch with every project and that vessel reduces the chances of winning Following Petrofac’s initial planning the industry has a common contracting an order. and engineering support, the language. In contrast, this does not exist company was subsequently awarded in offshore wind making contracting, Delivering cost reductions a “maintenance and support services already a time-intensive and expensive As a developing industry, offshore wind contract by ABB for the BorWin Alpha exercise, even more costly than it needs needs to find significant savings across Platform including the provision of to be. Every contract has to be built the value chain, perhaps as much as 50 the offshore installation managers from scratch. In addition, offshore wind percent. Turbine manufacture makes 8 and commissioning engineers.” clients (typically utilities) have different up about 40 to 45 percent of the cost legacy contracting practices. In oil and of installation and the manufacturers Saipem gas, the concept of a single project have a way to go in reducing costs. Saipem Engineering and Construction manager contractor (PMC) is common, Cost reduction in this stage can come has stated that part of its growth while utilities have historically broken from R&D and new innovations in strategy is to excel in selected up projects into multiple components design, manufacturing, build, and diversified businesses, including with different suppliers tendering for installation processes focused on the offshore wind9. each. In the context of offshore wind, offshore environment and then tailored this practice fragments the supply chain, to the geographies. With more R&D, Business challenges for the does not necessarily reduce overall the designs will become cheaper to project costs and increases risks. It also manufacture and the turbine size/output offshore wind industry leads to a situation where it is often the capacity ratio will improve. Much of the Accenture interviewed an executive lowest cost supplier for that piece that risk (and therefore costs) involved with from the oilfield services industry, wins the bid versus the most qualified offshore wind operations involve heavy who pointed out that many of his supplier that will reduce overall project lifting. As the technology improves, the industry’s capabilities are not yet costs. Uncoordinated delivery of project materials should get lighter, making being fully or even partially leveraged components presents a challenge in the them cheaper to lift while the lifting by offshore wind developers, and offshore environment, where the value operations should also become more commented on the main business of supply chain interdependencies is efficient with practise. challenges facing the industry. exacerbated as a result of the high per- day vessel costs.

36 37 Just like the turbine manufacturer and Putting in new HSE regulations will 1 Subsea 7 S.A. Annual Report and Financial installation, oilfield services companies’ make the industry safer, but will be Statements 2011, www.subsea7.com. costs are likely to come down as they more expensive to operate. This added 2 gain more experience in the industry expense may force out smaller players SSE Offshore Wind Alliance, Subsea 7, www.subsea7.com. and continue to innovate. The industry that cannot afford to operate in this will likely move from piled offshore manner and, consequently, advantaging 3 Fabrication & Offshore Services, Neptune, wind structure into floating structures. the larger players. This consolidation www.neptunems.com. This will be another way to keep costs and maturing of the supply market down, but will take time to develop the is something that we have seen in 4 Renewable Energy, Fluor, www.fluor.com. necessary innovations in technology. other industries; for example, it is also 5 Greater Gabbard - Offshore Wind Farm – happening now in onshore shale gas EPC, Fluor, www.fluor.com. Oilfield services companies provide in the United States, where stricter similar services in offshore wind and environmental regulation is forcing out 6 http://www.petrofac.com. offshore oil and gas. They typically some smaller operators. incur similar operating costs for both 7 Case study: TenneT Borwin Alpha, Petrofac, industries and so charge similar prices, Despite the financial burden, HSE must www.petrofac.com. which are driven by operating costs. be regulated in order to make the Longer term, there will be process industry sustainable. Some industry 8 http://www.petrofac.com. and scale benefits—for example, from executives believe that HSE should 9 BU Engineering & Construction, November bulk purchases for large projects—but be managed by a government body, 2011, Saipem, www.saipem.com. otherwise the cost of manpower, the but not Ofgem, as the typical utility engineers, will remain the same and operation is far removed from the will be impacted by what oil and gas is offshore environment. Offshore oil and willing to offer. gas experts should be used to share the leading practices in health and The high costs to develop projects and safety into the offshore wind industry. manage offshore wind operations are With time and experience, clearer HSE likely to remain a significant challenge. requirements can be established for The industry knows costs need to come offshore wind. down. Turbine costs need to come down but so do other areas of the supply chain. R&D teams are likely to find Summary cheaper and more efficient methods In summary, oilfield services companies for capturing offshore wind energy, but are critical in the development of UK this will require up-front investment to offshore wind. They bring decades develop the new technologies and the of experience in safely building, time to test them out. The competition operating and maintaining large from offshore oil and gas development structures offshore. In addition to makes offshore wind seem relatively the critical engineering resources, expensive by comparison. With time, it is important that the oil and gas there may come a point of equilibrium, experience in HSE, project management, where oil and gas becomes more risk management and contracting be expensive and offshore wind becomes leveraged as far as possible. Offshore cheaper. Until then, developers will be wind has to find a way to structurally competing for services and resources reduce costs by about half, and line with the oil and gas majors and will of sight of how this will happen has need to fight to keep costs down. to be clearer in the next five years and cost reductions achieved during HSE the build-out in the next 10 years. If While guidelines exist, there are limited not, developers likely will not invest. health, safety & environment (HSE) regulations or reporting structures and this lack of HSE guidelines causes significant problems for offshore wind industry. There is a high fatality level and a poor industry record. The high fatality level will dissuade some from involving themselves in the industry. Furthermore, the lack of HSE regulations often results in the cheapest (and sometimes least safe) supplier seeming to propose the most attractive option.

38 2.4 Grid integration of offshore wind

The intermittent nature of wind Typically, base-load plants are flexible increases plant maintenance generation means that integration large-scale hydro, nuclear, coal and requirements, deteriorates fuel into an electricity grid and associated combined-cycle gas turbine (CCGT) efficiency and thereby produces higher market that values predictability is units, which are designed to efficiently emissions per kWh relative to normal a critical step towards widespread generate hundreds or thousands of base-load operation48. wind energy deployment. Offshore megawatts at a constant, optimum wind speeds are stronger and more output level. In the UK, natural gas In addition to base-load generation, stable than on land, making offshore is the dominant base-load source, peaking plants provide additional wind generation potentially easier providing 47 percent of total electricity back-up capacity, particularly during to integrate into the generation mix generation in 2010 compared to 28 high-load daytime hours. Peaking plants than onshore wind. However, despite percent for coal and 16 percent for are normally simple- or open-cycle gas this advantage, offshore wind is still nuclear47. This dominance of gas is due turbines or diesel generators, which relatively unpredictable and integration to a significant build-out of natural gas are able to switch on, and ramp up will require so-called ‘back-up’ or capacity over the past two decades as and down quickly to match supply and ‘firming’ capacity that serves to even North Sea gas discoveries, declining coal demand fluctuations. Fast-response out the otherwise intermittent supply to production and emissions regulations peaking plants are typically better the grid. shifted support from coal to gas. able to cycle to balance the large fluctuations in wind output than base- How wind is currently In recent years, the combination load units. However, peaking plants of electricity market liberalisation are also the least fuel-efficient plants integrated and widespread deployment of in the generation fleet, and this lower At present, back-up capacity for renewables has led to significantly less efficiency means higher variable costs intermittent renewable power predictability in how much power an and higher emissions intensities. generation is provided by the generation individual plant will be called upon to To improve the effectiveness of offshore fleet. The grid operator adjusts generate at any given time. This, in turn, wind deployment, the status quo must the output of the fleet to balance has increased the amount of cycling a be improved to include capacity better renewable supply variations using the plant has to perform. The majority of suited for backing up the intermittent operating reserve, in the same way plants were designed and built more wind output. Such capacity is likely it adjusts to changes in consumer than a decade ago, and they were built to come from more flexible back-up demand or ‘load’ throughout the day. to minimise capital costs and optimise capacity (particularly natural gas and This reserve includes both base-load efficiency for a stable, maximum hydro-electric power where available), plants, which provide spinning reserve, output at the expense of their ability and in the long term may include and cycling and peaking plants, to ramp up and down. The cycling of new energy storage technologies and which can come online and ramp such existing base-load plants is costly demand response systems. up rapidly to provide supplemental as they have, by design, low ramp-up reserve capacity as needed. and ramp-down speeds and perform suboptimally at levels different from base-load output. Requiring them to be

39 Improving the flexibility of This deployment of flexible gas capacity back-up plant, and also upgrades to on the grid will most likely be part existing CCGT plants as proposed back-up generation of an overall shift to gas in European by Siemens53. With more flexible As the grid’s requirements from the economies, where carbon pricing and designs, these plants can become generation fleet change, utilities and other emissions regulations continue base-load generators and also primary power plant developers are adapting to to drive the decommissioning of older providers of the cycling capacity support these needs. New power plants coal plants. In the UK, this trend needed to support wind back-up. are increasingly built with flexibility could be less pronounced given the as a key focus, including flexibility existing abundance of gas generation. Recent simple-cycle gas turbine models of fuels and of generation output. Nonetheless, DECC forecasts the closure are also becoming increasingly energy Through improvements in turbines, heat of approximately 11 GW of coal- and efficient, rivalling existing base-load exchangers and input materials, plants oil-fired capacity by 2016 and another 6 generation. For example, the latest are better able to adjust rapidly. For GW of nuclear plants51. These capacity 200 MW plus models can ramp up example, the latest coal and gas power shutdowns will require the construction to 75 percent of their capacity in 10 plants installed by one of the leading of significant new capacity to minimise minutes, and offer up to 38.5 percent 54 German utilities are able to ramp up and the risk of a crunch point after 2015, the efficiency in simple cycle operation , down more than three times faster than majority of which is likely to come from comparable with conventional coal older generation plants49. This greater natural gas-fired units. plants. These units provide an efficient flexibility allows significantly more method of backing up fluctuations in renewable capacity to be supported by Increasing CCGT use will involve renewable output, complementing the a single large plant. Among the current building new grid capacity and should spinning reserve and rapid cycling of sources of wind back-up capacity, the also include retrofitting existing CCGT flexible base-load. While these models consensus is that natural gas is the best plant capacity to improve flexibility represent the cutting edge of gas fuel option for widespread use in the in locations where the economics are turbine technology, the older peaking UK and, as the report by the Centre for appropriate. Gas turbine and power capacity on most grids does not provide Strategic International Studies called it, plant manufacturers, such as Siemens such high efficiencies and its scheduling “an essential partner to the development and GE, are working to make CCGT for renewables back-up does negatively of renewables50.” plants more flexible, while retaining impact the overall grid efficiency. For high efficiency during base-load this reason, the deployment of new operation. This development includes peaking capacity and flexible CCGT both new plant designs, such as GE’s capacity should occur in tandem with FlexEfficiencyTM 50 CC Power Plant52 renewables deployment to minimise that is marketed as a renewables operating costs as well as emissions.

40 41 Natural gas as the current technology of choice for back-up of intermittent generation

Ability to cycle Security of supply Natural gas plants are easier to cycle Recent increases in estimates of natural than coal plants due to greater simplicity gas reserves and the ongoing expansion in controlling fuel supply and greater of the global liquefied natural gas responsiveness of the direct combustion (LNG) market have led to increased gas turbine systems compared to coal stability in global gas supplies and or biomass boiler-to-steam turbine lower long-term gas price forecasts. systems. New CCGT plants can ramp up This new paradigm of lower-cost gas at 38 MW/minute, compared to 27 MW/ has been driven by improvements in minute55 for new coal plants. This greater unconventional gas extraction (hydraulic- ramp rate enables gas-fired units to vary fracturing technologies for extracting output more quickly and with less wear shale gas), which are increasing the size on the system components, making them of economically recoverable reserves technically and economically superior for worldwide. These new reserves are adjusting fluctuations in wind. Nuclear combining with a wave of LNG investment plants have an even greater ramp-up rate that was triggered by the high gas (63 MW/min), but given their low marginal prices of the mid-2000s. New LNG cost and zero emissions output, generators production capacity is coming online from prefer to dispatch them as base-load. previously untapped gas reserves and new regasification capacity is also available in CO2 emissions Europe and Asia, increasing the liquidity Natural gas produces lower emissions and supply diversity of LNG markets. of CO2 and other pollutants than coal in power generation. This lower production is in part due to the lower carbon content in natural gas than that of coal, and in part because natural gas plants are generally more efficient than coal plants in converting fuel to electric power56.

42 To provide economic security to approach and is easier to create and pumped storage infrastructure to developers of flexible capacity, the implement, but risks commitment to provide balancing capacity for existing government or grid operators should suboptimal providers and would also German renewable energy and also for provide market systems to ensure inhibit further innovation in back-up the massive expansion of offshore wind such plants receive priority as back- technologies once back-up capacity is capacity that is planned to come online up for renewables due to their greater established. The DECC has indicated a across the North Sea. Expanding the efficiencies and cycling speeds relative preference for a non-market approach, capacity of Norway’s existing pumped to existing base-load capacity. A price in which a central body would be storage infrastructure and investing on carbon is the most economically responsible for owning and maintaining in a high-voltage direct current HVDC efficient way of providing incentives a strategic reserve as a set capacity transmission ‘super-grid’ could allow to develop more efficient and flexible margin57, although capacity markets Europe, including the UK and Ireland, plants. Other market-based policy and reliability markets are still currently to meet a significant proportion of its instruments, such as a capacity market, under assessment. renewables back-up requirements from could also be used to foster investment this ‘green battery’ in Norway. in high-flexibility back-up capacity. Hydro-electric power As described in the DECC’s Electricity Future technologies Market Reform white paper, the UK Although natural gas is a prime government is currently assessing candidate for wind back-up, hydro- While natural gas and hydroelectric potential capacity mechanisms to ensure electric generation is technically power are the best technologies the provision of sufficient back-up the most effective complement currently available, both have limitations capacity to support renewable growth. to renewable generation currently in moving to a carbon-free, energy- Any capacity market should provide available. Hydro-electric power can secure future. The technical ideal would sufficient potential economic returns for be rapidly cycled, has zero operating be to have fully flexible capacity to investments in flexibility as part of both emissions and has no loss of energy efficiently store renewable electricity new-build and retrofit projects. efficiency in the cycling process. whenever there are surplus generation Norway, a major player in future spillovers and to release this stored offshore wind deployment, is also home energy when in demand, thereby Wind farms as schedulable to 28 GW of hydro-electric capacity58. smoothing out the supply profile. Such plant: bespoke back-up Norway is therefore in an enviable storage could take place at the grid or capacity position as it integrates offshore local level and could be complemented wind. While hydro-electric power is by automated demand-response In some locations, renewable energy technically attractive, its role as a major technologies, which adjust consumption developers are co-locating highly source of renewables back-up is limited of power by consumers to increase or flexible, gas-fired power plants by the number of suitable locations for decrease electricity consumption as alongside intermittent renewable its deployment. Some regions, such as output availability fluctuates. While sources to allow the site to bid Norway and Canada, are blessed with such technologies offer significant into electricity markets as a single, significant hydro-electric capacity. promise, both are still emerging schedulable power plant. Although Elsewhere, however, deployment technologies and are unlikely to offer building 100 percent back-up capacity locations for large-scale, hydro- widespread renewable-back-up support coverage would be too onerous for a electric power are limited in most other in the near term. multi-gigawatt offshore wind project, geographies. In the United States and partnering with purpose-built, co- Western Europe, most potential hydro- Research into utility-scale storage located back-up capacity would be electric locations have already been technologies such as batteries, fly- valuable as a means of mitigating developed, leaving limited scope for wheels and compressed gas has volatility of intermittency input into additional growth to match widespread occurred for decades and is seeing the grid, and for reducing the amount renewable deployment. resurgence in investment due to the of cycling required by less efficient new growth in renewables and major base-load and peaking units on the Significant investments in transmission breakthroughs in battery technologies grid. Moreover, such partnering could and grid interconnection could from consumer electronics. The key allow for the use of predictive wind potentially play a major role in challenges for grid storage technologies systems and data sharing between wind addressing this limitation by are to provide sufficient round-trip farm and back-up turbine operators to compensating the intermittency of efficiencies to make storage of power optimise the planning and dispatch of wind output in one region with back-up economically attractive, with enough back-up capacity. capacity power from remote hydro- durability to allow the systems to electric power plants. Research on operate on utility-industry timescales As opposed to the previously described such potential is already occurring in (decades rather than years), and to capacity market systems, such Norway’s CEDREN research centre59, be scalable from a cost and resource specialized capacity development is which is engaging with Germany and perspective. At present, no technologies a more direct approach to ensuring the rest of the European Union to (outside of pumped-storage hydro) are sufficient back-up capacity. This assess the potential of using Norway’s close to overcoming these performance targeted mechanism provides a simpler

43 barriers. A small number of pilot projects In this scenario, nonessential loads are beginning to test technologies, such as air conditioning and lighting such as A123’s onshore wind back-up could be adjusted by a building’s power projects in China and Hawaii60, but such control centre, industrial facilities pilots are still too small for commercial could rapidly manage power to application. This research is still many nonessential processes and, if electric years from delivering technologies that vehicles achieve sufficient scale, are durable and scalable enough to be a there is the potential to control the major source of back-up. power flow rates of electric vehicle charging stations to manage real-time Demand response is a novel consumption. Eventually, the grid could method of managing renewables even allow two-way electricity flow to intermittency. Currently, demand and from vehicle batteries as a means of response is primarily used as a means nodal storage as previously described. of peak shaving, allowing utilities to ask larger customers, or demand- Although demand response offers response aggregators, to reduce their significant potential, the half-lives of consumption during times of peak buildings are measured in decades, total electricity demand to reduce meaning deployment of enough pressure on the grid61. At present, buildings and factories with centralised demand response is a manual process building control and energy-efficiency with communication made person- technologies will take decades to to-person and power consumption achieve significant scale. In the decades adjustments performed manually. In until such technologies reach useful the future, however, as building energy capacity, natural gas and hydro-electric management systems are automated, power will provide the optimum means appliances and equipment are built with of cleanly, efficiently and economically ‘smart’ capabilities, and ‘smart grids’ integrating offshore wind capacity. are rolled out, there is an opportunity However, in the future, these multiple to build significant automated demand systems could provide significant response capacity into the system. intermittency balancing opportunities.

44 2.5 Other considerations and challenges

Access to finance • Diligence in assessment and Consenting and regulations management of construction, operating, Mega-projects are capital-intensive financial, regulatory and other risks – The UK government’s efforts to investments, and channelling the financiers are typically conservative overcome development hurdles such tens of billions of pounds required to and place a high value on measuring as the streamlining of the consent develop the UK’s plans for offshore wind risk. A systematic, comprehensive, application and environmental capacity will be a major challenge. Yet transparent and objective assessment assessment processes are generally there is potential for improving access and presentation of risks along the appreciated in the market, but there to capital for these large investments. construction and operation chains are still concerns in the supply chain. of offshore wind farms, and a plan The government appears to be helpful In addition to government support to address them, would increase the in making minor adjustments, but via the Green Investment Bank, the likelihood of securing finance. commitment in addressing the needed financial aspects of an offshore fundamental changes is still perceived mega-project that could improve the • Making a case for securitization and to be lacking. accessibility to capital and a reduction other structured finance instruments in insurance costs include: - Asset Backed Securities and other There is a clear need for a more forms of debt pooling, whether to public active coordinating government: • Demonstrating a sound business or private investors, could be used to failure to deliver in any one area (grid case – Securing finance requires the attract additional capital to finance infrastructure, installation vessels or demonstration of a solid business offshore wind, but given the limited turbine manufacturers) will jeopardise case. The financial community must track record of offshore wind projects, the important investments made in be shown line of sight towards making this is very likely to require some type of many other elements of the supply offshore wind a technology that is government backing and support. chain. The planned 40 GW offshore competitive with traditional power wind development in the North Sea generation technologies, given realistic • Structuring project contracting, presents a significant opportunity for scenarios on the evolution of key development and finance to match the development of UK industry. There commercial drivers such as electricity risk appetite of targeted sources of is a risk that this opportunity will and fuel prices, carbon prices and finance – the risk / return appetites be missed if the government retains regulations, as well as government of different sources of finance such its position of being agnostic to the subsidies and other types of support. as investment banks, infrastructure manufacturing location. That risk can funds, insurance funds, pension funds, be minimized by increasing support and private equity vary widely. Project and fostering supply and demand developers and operators should side cooperation for the development carefully explore and consider tailoring of an adequate supply chain. their project to make it attractive to specific sources of finance.

45 Regulations and clarity are also lacking European level, the European Wind in the HSE domain as well as in REACH Technology Platform has been set (Registration, Evaluation, Authorisation up for the coordination of national and Restriction of Chemical substances activities, and dedicated FP7 joint calls in the EU) requirements. Offshore wind- have been established to investigate specific HSE regulations in particular potential multiple uses of offshore sites. can promote the improvement of the Developers, suppliers and operators industry’s security track record, thereby should explore ways to leverage this serving to reduce insurance costs. support and collaborate to advance technology improvement until the Public R&D programmes market develops sufficiently to warrant larger-scale private R&D programmes. As part of its significant push for offshore wind, the UK government is dedicating important amounts of public funds for innovation in offshore wind turbine technology. The UK Renewable Energy Roadmap mentions R&D support from several organisations including the Carbon Trust, the Energy Technologies Institute and the Department of Energy and Climate Change. At the

46 3 Conclusions

47 48 Offshore wind is a promising and In this paper, we highlighted a series of • Full implementation of leading abundant source of clean and renewable key challenges that we see in developing practices in large capital project energy. The developments in the UK, projects of this scale, including: management and contracting. with multiple projects in excess of 800 MW being either built or planned • The supply chains of turbines and the • Flexible and low-cost infrastructure thanks to a comprehensive framework vessel contracting industry, which are and operating models to cater for the of support from the government, are not currently adapted to support the requirements of consortia and changes positioning this technology to compete volume, scale and specifications of the in ownership and operatorship. with today’s utility-scale coal and gas planned projects and where greater plants. Yet to become truly competitive cooperation between the supply and • A simple and straightforward (i.e., absent government support) with demand sides of the value chain appears regulatory framework to improve HSE traditional electricity-generation to hold the key to success. performance. technologies, the development costs • A more holistic and end-to-end of offshore wind projects need to • The need for offshore wind to improve understanding of the challenges and decline by nearly one-half, from HSE performance in development opportunities, necessary to develop today’s £2.3 million/MW to around and operations over a relatively short the right capabilities, resources, and £1.3 million/MW, and overall project timeline, primarily by leveraging lessons technologies to develop and operate in economics need to improve. Accenture learned, capabilities and practices from the marine environment. believes such mega-projects will the mature offshore oil and gas industry. change offshore wind economics • The imperative to optimise and by pursuing scale efficiencies, complement offshore wind output with implementing leading practices in other sources of generation to minimise development and operations, and the issues associated with intermittent transforming the supply chain. power generation at large scale. With total installed capacity of Undoubtedly, there are other 3,917 MW globally, offshore wind important challenges here in detail, power represents today only 0.08 such as securing access to finance, percent of the world’s total installed but Accenture’s view is that the power capacity62. However, the UK aforementioned issues are the is challenging this marginal market showstoppers that are truly unique to to scale significantly with 13 mega- offshore wind mega-projects. projects likely to be built in the next two decades, which together would amount In addition to effectively addressing to more than 37,125 MW. Outside the the challenges highlighted in this paper, UK, there are only 11 projects planned Accenture believes that to be successful, with capacities exceeding 800 MW. the offshore wind industry needs to Moreover, other countries typically have have: less than two or three megaprojects. This means that the future potential for • The players required to develop the offshore wind will largely be determined industry—i.e., the project developers by what happens in the UK market. (whether they are utilities, oil companies Success or failure there will determine or consortia), the oilfield services and whether offshore wind will remain as marine contracting industries, the a source of niche incremental capacity turbine and component manufacturers, supported by government subsidies and the grid company—all aligned in the or whether it will contribute to a scale, the timelines, the understanding significant proportion of the electricity of each others’ business imperatives, generation mix. and in the need to have a competitive cost structure for offshore wind. It is in the UK that current • Greater maturity in its approach to cost structures and working with the regulators, project operating models will be planning and development, risk management, and HSE as well as with challenged first. other actors in the offshore wind industry.

49 Implications for key players

Overcoming the barriers and Utilities • Develop innovative contract structures developing the capabilities to be to better share risk and adequately successful in the strategic offshore Utilities will likely play a variety allocate incentives across the supply wind industry will mean different of roles in offshore wind mega- chain; e.g., shift business rationale from things for the players across the value projects, from developers, to a cost/MW installed to a cost/MWh chain. The sectors coming together consortium members and operators. generated; move away from atomised to deliver offshore wind—utilities, To be successful, utilities should: contracting to Engineering, Procurement oilfield services, upstream oil and and Construction (turnkey) approaches. gas, vessel providers and turbine • Determine and understand the manufacturers—have different roles, role that offshore wind will play, • Identify and implement the legacy characteristics and capabilities. whether directly or indirectly, in appropriate operating models for This section briefly reviews what their generation portfolios. consortia with oil and gas companies and other nonutilities partners. these implications may be for the • Understand the assets and skills different players in offshore wind. needed to develop these projects and • Understand the need and define a how to acquire them; e.g., capability strategy for long-term technology R&D development, acquisitions, joint investment; e.g., in peak management, ventures and service providers. demand response and energy storage.

• Improve project management • Define and implement strategies for and engineering skills to deliver intermittency management; e.g., bundle the structural cost reduction with flexible capacity or manage it via the industry requires. the grid.

• Acknowledge the lessons learned • Embrace the need for simple, firm, in other industries, oil and gas in offshore wind-specific HSE regulations. particular, and develop the means to transfer that knowledge.

50 51 • Engage with turbine manufacturers, • Recognise that given the radically • Share lessons learned across the vessel contractors, oilfield services different logistics and operations in the industry with other service providers. providers and other industry marine environment, technologies will stakeholders to develop a point of view have to be designed with an end-to-end Vessel contractors about line of sight of cost reductions, to perspective, requiring greater inclusion be socialised with industry and broader of manufacturing location, logistics Vessel contractors’ activities fall on stakeholders (finance in particular). and maintenance considerations in the the project critical path and perform a design. major activity in the project life cycle. Oil and gas companies They should: • Acknowledge the need for cross- Oil and gas companies are the only border cooperation between supplying • Pursue long-term strategic companies really experienced in building countries and demanding countries to agreements and commitments and operating installations offshore of develop the most efficient, scalable with developers to enable this scale. This offshore construction supply chain. more secure financing for and operations experience gives them manufacturing new vessels. the potential to be key players in the • Explore and develop innovative offshore wind mega-project value ways to fund R&D for standardised • Explore options for maximising chain. In addition, they also have components and offshore wind-specific vessel utilisation across wind natural gas assets. Natural gas will be turbines and technologies, including project developers as well as the most important complementary through partnering with all actors across industries (e.g., tidal/wave fuel source to offshore wind. In the across the value chain. energy, oil and gas projects). UK, some companies such as Statoil • Collaborate more closely with turbine and Repsol have begun to lead the • Engage with project developers, vessel designers and project developers to way by partnering with utilities and contractors, oilfield services providers improve installation vessel design for other players to develop offshore and other industry stakeholders to offshore wind-specific projects. wind projects. Oil and gas companies develop a point of view about line of sight of cost reductions, to be socialised that want to enter the offshore wind • Identify vessel traits that with industry and broader stakeholders industry should: maximise vessel suitability to (e.g., finance). offshore wind and, where applicable, • Leverage their offshore project modify existing vessels. management, development, Oilfield services providers construction, operations and HSE experience; e.g., acknowledge the need Oilfield services providers will also for knowledge transfer to offshore wind play a pivotal role, serving as catalysts developers and operators. for cost reductions in construction, operations and logistics. They should: • Determine how (e.g., technologies, operating models, contracting) natural • Continue fostering innovative gas could most effectively be leveraged partnerships with developers and by the offshore wind industry. other organisations to pursue technology breakthroughs, • Determine their appetite for reduce cost and share risk. partnering. • Help developers in embracing an • Help developers in embracing an offshore wind-specific HSE framework. offshore wind-specific HSE framework. • Explore opportunities for expansion into offshore wind through M&A to Turbine manufacturers increase capability and quickly gain Turbine manufacturers remain a key specific offshore wind expertise. piece of the puzzle, and will likely hold back the reengineering, retooling and • Leverage their valuable experience scaling of their operations, investments working in the offshore oil and and capabilities until there is a clear line gas industry to expedite the of sight to firm, long-term demand for development of the offshore offshore wind turbines. To be successful wind industry by sharing lessons in supplying this market, they should: learned with offshore wind project developers and vessel contractors. • Explore new partnering models with project developers to secure future demand and reduce risk.

52 4 Glossary

Term/acronym Definition or description AREG Aberdeen Renewable Energy Group Base-load plants Large-scale hydro, nuclear, coal and combined-cycle gas turbine power plants that run during peak and off-peak hours CAPEX Capital expenditure CCA Climate Change Act (UK) CCGT Combined-cycle gas turbine DECC Department of Energy and Climate Change (UK) EMR Electricity Market Reform (UK) EOWCD European Offshore Wind Deployment Centre EPS Emissions Performance Standard e-ROC Electronic Auction of Renewable Obligation Certificate (UK) ETI Energy Technology Institute ETS Emission Trading Scheme EU European Union EWEA European Wind Energy Association FIT-CFD Feed-in-tariff with contracts for difference GHG Greenhouse gas GIB Green Investment Bank (UK) GW Gigawatt HSE Health, safety and environment HVAC High voltage alternate current HVDC High voltage direct current IPA Independent Project Analysis LNG Liquefied natural gas M&A Merger and acquisition Mega-project Offshore wind project with a capacity of 800 MW or more MOU Memorandum of understanding MW Megawatt MWh Megawatt-hour NaREC National Renewable Energy Centre NFPA Non-fossil purchase agency O&M Operation and maintenance Ofgem Office for Gas and Electricity Markets (UK) OFS Oilfield services ORED UK Office for Renewable Energy Development Peaking plant Simple- or open-cycle gas turbines or diesel generators used during peak hours REACH Registration, Evaluation, Authorization, and Restriction of Chemical substances in EU RO Renewable Obligation (UK) ROC Renewable Obligation Certificate (UK) TIC Technology and Innovation Centre TWh Terrawatt-hour UK Crown Estate The entity managing licensing of the UK seabed for offshore wind power capacity UNFCCC United Nations Framework Convention on Climate Change

53 5 Authors

Melissa Stark George Kitovitz Peter Thompson Lead, Clean Energy [email protected] [email protected] [email protected] Tessa Lennartz-Walker Serge Younes Mauricio Bermudez-Neubauer [email protected] [email protected] Lead, Offshore Wind [email protected] Steve McGill Shengkai Zhao [email protected] [email protected] Contributors Sten Neumann (alphabetical order) [email protected] Luca Corradi Davi C. Quintiere [email protected] [email protected] Freddie Darbyshire Øyvind Strømme [email protected] [email protected]

54 6 Reference

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57 42 ‘The Crown Estate Announces Round 52 FlexEfficiencyTM 50 Combined Cycle 3 Offshore Wind Development Partners’, Power Plant, www.ge-flexibility.com/ The Crown Estate, 8 January 2010, index.jsp. FlexEfficiency is a trademark www.thecrownestate.co.uk. of the General Electric Company.

43 Accenture-commissioned research 53 Henkel, N., Schmid, E., Gobrecht, E., undertaken by Audu, M. Jinadu, B., ‘Operational Flexibility Enhancements of Mugisha, A., and Olusoga, A., MBA Combined Cycle Power Plants’, Siemens research students from Robert Gordon AG, presented at POWER-GEN Asia University. 2008, Kuala Lumpur, Malaysia, 21 Oct 2008, www.energy.siemens.com. 44 ‘Technip Celebrates Official Launch of Offshore Wind Business and signs MOU 54 7FA Gas Turbine, GE Energy, www. with Iberdrola’, 1 August 2011, Technip, ge-flexibility.com. www.technip.com. 55 ‘The Need for “Smart Megawatt” – 45 ‘Subsea 7 Launches Renewable Unit, Power Generation in Europe – Facts & Forms Offshore Wind Alliance’, Dow Trends’, RWE, www.rwe.com. Jones Business News, 19 January 2011, http://global.factiva.com. 56 On a direct fuel comparison, combustion of natural gas produces 46 Ibid. roughly 55 percent of the CO2 emissions/million btu of coal; add to 47 Fuel input for electricity generation, this the higher average efficiencies UK Department of Energy and Climate of natural gas plants (approximately Change, www.decc.gov.uk. 55 percent) compared to coal plants (approximately 39 percent) and natural 48 C. le Pair & K. de Groot, ‘The impact gas can produce as little as 40 percent of wind generated electricity on fossil of the CO emissions/kWh that would be fuel consumption’, www.clepair.net/ 2 produced by a coal plant. windefficiency.html. A Dutch study calculated that for a grid with 5 percent 57 ‘Annex C – Consultation on possible of generation from renewables, if models for a Capacity Mechanism’, cycling of thermal plants to provide UK Department of Energy and Climate backup for intermittent plant output Change, www.decc.gov.uk. leads to an efficiency loss of only 2.5 percent across the grid, it would negate 58 Energy, Statistics Norway, the fuel reduction initially created www.ssb.no. by the renewable generation. This assertion sounds alarmist; nonetheless, 59 ‘Research council looks to the future’, as intermittent renewables form a ReCharge, 11 November 2011, © 2011 larger share of total generation, this ReCharge. effect is accentuated and minimising efficiency losses from firming capacity 60 ‘A123 Systems to Supply Advanced is increasingly important to maintaining Energy Storage Solution to Maui Electric the value of renewable deployment. Company to Support Maui Smart Grid Project’, 20 December 2011, A123 49 ‘The Need for “Smart Megawatt”– Systems, www.a123systems.com. Power Generation in Europe – Facts & Trends’ RWE, www.rwe.com. 61 These agreements are often known as ‘interruptible contracts’. 50 ‘Developing America’s Unconventional Gas Resources’, December 2010, Center 62 Accenture analysis based on data for Strategic & International Studies from EWEA and Enerdata (global energy (CSIS), © 2012, http://csis.org. and CO2 data).

51 ‘The future of UK energy’, Department of Energy & Climate Change, www.decc. gov.uk.

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