Meeting the demand

Future trends in offshore wind are analysed by Colin Morgan, head of offshore wind at Garrad Hassan

With UK and European governments in a position where they have no choice but to face the future energy challenges of carbon abatement, securing supplies and, most recently, green employment, all hopes are firmly pinned on the rapid escalation of renewable energy and, because of the volume of raw resource across Northern Europe, offshore wind energy. While it is absolutely right that attitudes to renewables are now mostly positive, it is important to keep feet firmly on the ground; the ramp up required and the barriers to overcome in order to really deliver some of those targets are significant, as many countries are now starting to realise.

Offshore wind is absolutely key to realising future energy aspirations and has the potential to provide significant volume, particularly from Northern European coastal states where the combined hope is to reach a capacity of somewhere in the region of 100GW, care of the North Sea alone, by the middle of this century.

While nobody would dispute that the long-term outlook for offshore wind generation is very positive and that projects planned over the next few years are set to deliver some of the world's largest power plants across all energies, we need to remember that this is not a mature industry and that global installation rates are yet to break the 1GW per year mark. It doesn't take a genius to realise that, unless things change, the numbers already don't add up.

The UK is the current offshore race leader as a result of its world-class resource; in fact, offshore installations during 2009 are predicted to come close to matching or exceeding onshore installations. At the moment, there is a process underway to allow the Crown Estate to let out a third round of UK offshore wind farm leases. When all the projects that stem from this third round are realised, they should provide a total UK capacity of 25GW, supplementing the 7GW from Rounds 1 and 2 combined; while this is a significant volume, we should bear in mind that the UK government's current aspiration is to deliver offshore wind capacity of 20GW by 2020. Taking into account the current considerations, lead times etc, this would require an installation rate in the UK of 3GW per year during the period 2016-2020, which would mean ramping up in the UK alone to three times the current installation rate globally - achievable, but no small feat!

The core barriers to scaling up, both in the UK and anywhere else, are pretty much the same. Immediately, there are the supply chain constraints; any serious ramp up will require more physical equipment to be manufactured, delivered and installed in higher volume at a faster pace, whether this be the turbines themselves, installation vessels, foundation manufacture, subsea cable, etc. These things demand the growth of incumbent suppliers and more players joining the supply chain. Alleviating these problems really highlights a pressing need for investment, particularly given that the lead time from decision to delivered capacity is about three years.

Over the last five years, capital costs for wind have spiralled and, for offshore wind, have reached a level of around €£3m per MW, more or less doubling since 2005. A recent study that Garrad Hassan undertook for the British Wind Energy Association analysed these costs and predicted future trends. While the resulting report highlighted some scope for cost reductions, the current situation looked set to become a fairly
level trend over the next five years.

So, is the offshore wind industry going to deliver? Onshore wind has been a shining light in the energy business for the past decade, delivering and exceeding pretty much any target anyone has cared to set for capacity. Offshore wind has been, until 2009, a serial under-achiever. The past year has seen a turnaround, much to the credit of the UK Government's concerted support. This has given the whole business momentum with investment starting to flow and new blood entering the sector for the first time in five years. It's a good start but still fragile.

Investment in the supply chain is crucial to having the ability to deliver
in a mature competitive industry - crucial also to drive innovation and cost reduction. Investors into the supply chain are looking for scale, they are looking to realise a return within 10 years and, they are looking
to manage political country risk.

The potential scale of the offshore wind market in years to come certainly attracts the eye but historical under-performance to forecasts is unhelpful. However, recent delivery progress, especially in the context of abysmal news in many competing industries is improving attractiveness for supplier investments. Any individual major turbine supplier, for example, will look at a market of 1GW per year as the minimum before it moves central to their business plans. For a degree of competition, at least three players are needed so the sums are simple - a mature industry means somewhere around 3GW per year demand and probably somewhere closer to 5GW per year. By happy coincidence, that is around the level needed to match the demands from the offshore wind targets and policies of the North European coastal states.

So, there is no single country that, by itself, is able to deliver the scale, mitigation of political risk and long-term certainty that the offshore wind industry requires. Northern European countries working
together can achieve all these, but only if key stakeholders, but in particular governments, take a broad and united approach.

www.garradhassan.com