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