What Does the Round 3 Announcement Mean?
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www.bwea.com What does the Round 3 announcement mean? Briefing note on offshore wind energy BWEA is the trade and professional body for the UK wind and marine renewables industries. Formed in 1978, and with 548 corporate members, BWEA is the leading renewable energy trade association in the UK. Wind has been the world’s fastest growing renewable energy source for the last seven years, and this trend is expected to continue with falling costs of wind energy and the urgent international need to tackle CO2 emissions to prevent climate change. Notes 1. Employment opportunities and challenges in the context of rapid industry growth, Bain and Company, 2008, www.bwea.com/pdf/publications/Bain%20Brief_Wind%20Energy%20 2008_FINAL.pdf 5. 2. BWEA State of the Industry report Oct 2008 http://www.bwea.com.pdf/publications/industry_report_08.pdf 3. http://www.carbontrust.co.uk/emerging-technologies/current-focus-areas/offshore-wind/pages/offshore-wind.aspx and http://www.energytechnologies.co.uk/Home/Technology Programmes/offshore.aspx 4. http://www.theccc.org.uk/reports/progress-reports Figure 5 5. WWF Managing Variability, 2009, http://assets.wwf.org.uk/downloads/managing__variability_report.pdf 6. Germanischer Lloyd and Garrad Hassan, 1995. Study of Offshore Wind Energy in the EC. 7. The UK Renewable Energy Strategy, July 2009. Cm 7686, www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/energy_mix/renewable/res/res.aspx Introduction • The key obstacles to developing Round 3 are a lack of offshore This week marks the announcment grid connections, rising produc- of the winners of the third tender tions costs and limited existing round for offshore wind sites in supply chain capacity. the UK. Nine development zones will be allocated to companies and o The Government is currently consortia to start the development developing a new offshore process. The scale of this project transmission network regime to represents a step change for the manage Round 3 grid connec- global industry and to under- tions. The arrangements put in stand the implications we need to place must be efficient, cost ef- explore what can be delivered over fective and meet the generation the coming years and what this timetable and scale planned in means in terms of jobs and oppor- Round 3. The final arrangements tunities for the UK. put in place must be tailored further to the generation timeta- Key facts ble and scale planned in Round 3. This should incorporate more • UK is leading the world in the developer choice. scale of offshore wind develop- ment o The industry is experiencing a ‘cost hump’ with costs roughly • Round 3 will develop across nine doubling from £1.5m per MW in zones and the capacity of the early Round 1 projects to £3.1m leases issued is expected to be for Round 3 – this has been at least 25 gigawatts (GW). driven by the falling exchange rate, historically high commod- • Taken together with earlier ity prices and a lack of compe- rounds of offshore wind de- tition among manufacturers. velopment, Round 3 will mean However, falling material costs, a over 40GW of sites are currently UK based supply chain avoid- being brought forward. ing import costs and increased competition is expected to • If just 20GW of offshore capacity significantly reduce costs as the is developed by 2020 it will se- industry expands. New technol- cure up to £60 billion of private ogy and learning by doing will investment and could create bring down costs as well. 45,000 UK based jobs. o Offshore wind is currently only • Projects currently operational 1% of the world wide wind in the UK have a capacity of market and as such has a small 688 MW, across 9 projects, and supply chain, dominated by this represents 228 turbines. A just 2 turbine manufacturers. further 1156 MW of projects are The dramatic increase in market under construction. size represented by Round 3 is expected to attract several new • There are currently over 1500 players to the market helping MW of offshore wind installed to increase supply. We expect globally. This is 1% of the 150 six manufacturer companies to GW of total installed wind be in the market by 2015. The capacity on and offshore in the Renewables Obligation attracts world. investment to the UK and is part of the driver that could create a • Research is underway to UK offshore wind industry. develop a UK-build offshore wind turbine with a capacity of 10 MW. 1 Round 3 Offshore wind is developed in a series of competitive leasing rounds. Two rounds have been completed and these projects are now being developed. At the end of 2007 the Government initiated the process for starting a third com- petitive round. The Crown Estate as landlord and steward of the seabed started the Round 3 process in June 2008. This week’s announcement represents the conclusion of this competitive tender process. This round was structured differently from previous leasing rounds, as tenders were put forward for nine zones of development each potentially containing multiple projects. The scale of some of these zones is much larger than anything seen before with some zones potentially yielding 10 gigawatts (GW) of projects. In total the size of Round 3 is anticipated to be at least 25 GW compared to the combined total of 8 GW from Rounds 1 and 2. Another new feature of Round 3 is that within this process the Crown Estate will co-invest with developers, with the aim of facilitating efficient delivery of the wind farms. Round 3 December Jan 2008 to March January 2010-12 2012-13 2013-15 timeline 2007 June 2009 2009 to 2010 Jan 2010 Govern- Round 3 Strategic ment process Environ- initiated mental As- sessment The Crown Round 3 Round 3 Estate Tender winners announced Industry Project Financial Construction Developer consenting invest- of wind farm process ment decision Grid connection process Round 3 Offshore Wind Zones Analysis of Round 3 With the Round 3 announcement Wind farm Region Estimated MW industry now has the opportunity to Bristol Channel South West 1500 deploy on a large scale and prove the contribution it can make to the battle Dogger Bank North Sea 9000 against climate change, the supply of Firth of Forth Scotland 500 UK electricity and the creation of jobs. Hastings South 500 The scale of Round 3 is much larger Hornsea North Sea 3000 than anything that has been attempted before and in order to deliver in large Irish Sea Irish Sea 5000 quantities and on a timeframe that will Moray Firth Scotland 500 make a contribution to the UK’s 2020 targets, there are key factors that must Norfolk Southern North Sea 5000 be addressed to release the constraints West of Isle of Wight South 500 on the expansion of the industry such as grid connections, rising costs and Total 25500 supply chain. 2 The benefits of offshore There are further benefits to ally be built in the UK close to the wind increasing the amount of wind new market, or whether they will energy generation in the UK. With be based on the continent where The UK is already the leading less reliance on the import of oil there are already established market for offshore wind develop- and gas from other countries, onshore wind turbine manufactur- ment in the world, with just under then the UK becomes less vulner- ing facilities.While onshore wind 700MW operational, over 1,000MW able to restrictions in supply or in manufacturing is dominated by under construction and a further changing prices. With one third Denmark, Germany and Spain, as 3,500MW consented. of the UK’s existing power plants a new area of business offshore Wind developers are currently coming offline coming in the next wind offers opportunites to new setting out plans to deliver at least ten years the most recent OFGEM entrants from both overseas and 40GW of capacity offshore across report concludes that replacing the UK to emerge as market lead- all leasing rounds, this represents this with fossil fuels, mainly gas, ers in innovation and the supply up to £120 billion of private sector could cost consumers up to 60% of technology to create a British investment. more on household bills - due to based supply chain. fossil fuel price volatility. The report BWEA commissioned Bain and also stated that the price of oil has Key to attracting this new invest- Company to produce a report quadrupled over the last 10 years, ment is the creation of coastal that modelled the number of jobs and the price of coal and gas has manufacturing hubs, much like that could be created in the UK by doubled. Aberdeen is a centre for the North the growth of wind energy1 . In a Sea oil industry through the de- scenario where 20 GW of offshore Supply chain velopment of improved UK port to capacity were constructed by 2020 provide companies with the space and quay facilities they need – a and 70% of the design and manu- The scale of Round 3 will require a key requirement for offshore wind facturing took place in the UK then dramatic increase in manufactur- construction. If offshore wind nearly 45,000 British jobs would be ing capacity for offshore wind, such turbine manufacturers decide to directly created, with an additional as turbines, foundations, offshore locate new factories in the UK, then 14,000 created by onshore wind electrics and installation vessels. industry growth. new opportunities will also arise for existing manufacturing compa- Building confidence is key to nies in other sectors such as auto- Table 1. Direct jobs that could be persuading companies to invest in motive and aerospace to enter the created by offshore wind increased supply chain capacity.