The announcement of the UK’s Round Three offshore windfarm programme flags the single largest energy endeavour for Britain since the dawn of North Sea oil.
However, while the massive construction programme is predicted to create some 57,000 jobs – most of them temporary, in Energy’s view – it is unlikely to lead to the creation of a world-class supply chain – unlike the oil&gas industry, which ranks among the world’s best.
The British Wind Energy Association (BWEA) recognises the lack of a credible supply chain as both a major impediment to progress and an opportunity to, in fact, create one. According to BWEA, the wind industry is experiencing a “cost hump”, with costs roughly doubling from £1.5million per megawatt installed for early Round One projects to £3.1million for Round Three.
“This has been driven by the falling exchange rate, historically high commodity prices and a lack of competition among manufacturers,” says the association in a report on the implications of Round Three. However, falling material costs; a UK-based supply chain, avoiding import costs, and increased competition is expected to significantly reduce costs as the industry expands. New technology and learning-by-doing will bring down costs as well.”
Offshore wind accounts for just 1% of the global wind market and, predictably therefore, has a small supply chain.
There are currently 150,00MW of windfarms operational worldwide, but only 1,500MW of this (1%) is offshore – mostly in the North Sea. Round Three alone will represent an increase in global installed offshore capacity of at least 16 times.
According to the BWEA, the offshore market is ruled by just two turbine manufacturers. However, it expects that the dramatic increase in market size represented by Round Three is expected to attract several new players to the market, helping to increase supply.
Energy knows of at least six brands keen to gain a toehold in the UK, for obvious reasons.
“We expect six manufacturer companies to be in the market by 2015,” says BWEA.
“The Renewables Obligation attracts investment to the UK and is part of the driver that could create a UK offshore wind industry.”
The association says that the scale of Round Three will require a dramatic increase in manufacturing capacity for offshore wind, such as turbines, foundations, offshore electrics and installation vessels.
It rightly recognises that building confidence is key to persuading companies to invest in increased supply-chain capacity.
It says, too, that the Government’s role is central in providing a stable policy framework against which investment decisions can be made. But the compulsion element that characterised early North Sea oil, where domestic content was mandated, is totally missing.
“The UK is already beginning to see examples of new factories being built, such as JDR Cable’s new interarray cable facility at Hartlepool and Skykon’s investment in new capacity at its Welcon Towers subsidiary at Macrihanish.”
However, BWEA does not mention that Skykon was lured to Macrihanish by Scottish agencies Highlands and Islands Enterprise and Scottish Development International. This followed the decision by previous tenant Vestas to pull out.
Of course, the difference between Round Three and the prior two offshore wind rounds is that it has scale – several thousand turbines equivalent.
“Industry will need to dramatically increase capacity in the key supply-chain constraint areas, including offshore-specific wind turbines and installation vessels, and in manufacturing capacity for cables to link the windfarm to shore,” says the BWEA.
“A major concern is whether new manufacturing facilities will actually be built in the UK close to the new market or whether they will be based on the Continent, where there are already established onshore wind-turbine manufacturing facilities.
“While onshore wind manufacturing is dominated by Denmark, Germany and Spain, as a new area of business, offshore wind offers opportunities to new entrants from both overseas and the UK to emerge as market leaders in innovation and the supply of technology to create a British-based supply chain.
“Key to attracting this new investment is the creation of coastal manufacturing hubs, much like Aberdeen is a centre for the North Sea oil industry.”
It does not mention that Aberdeen, propelled by Aberdeen Renewable Energy Group, wants to achieve a similar status with offshore renewables.
BWEA: “If offshore wind-turbine manufacturers decide to locate new factories in the UK, then new opportunities will also arise for existing manufacturing companies in other sectors like automotive and aerospace to enter the market for component supply such as gearboxes, bearings, castings and other internal components. A solid skills base will be required to build industry.
“The emerging offshore wind industry can draw on the engineering excellence and maritime history of the UK. However, industry will need to be mindful of potential shortages in the number of suitably qualified and experienced new candidates.
“Support for the wind industry’s efforts in developing a UK-wide training scheme for apprentices is central to ensuring that there is a big enough pool of skilled workers in the UK to meet demand.”