Britain faces potentially fierce competition for offshore wind construction contracts and, despite the huge North Sea oil&gas heritage that can be brought to bear, it is, in Energy’s view, several years behind where it should be.
Leaving aside the miserable failure with regard to turbine power head assembly, let alone actual manufacturing, the best opportunity lies in foundations.
But who is involved in the substructures and pilings game? And how well developed is the competition around the North Sea rim?
The dominant type of foundation by far is the monopile. At least until recently, Britain had no capability, even though mono-tower platforms have been built for Southern Gas Basin use. That situation is now changing.
What is clear is that this market is, in fact, rather opaque, and it turns out that there are fewer manufacturers of substructures and piles than the claims of various companies suggest, which is helpful for the UK, where the lead player is, of course, Burntisland Fabrications – though now that SLP has reopened the former Hadrian yard on the Tyne, a second major player is about to emerge.
Despite the immaturity of offshore wind, relationships between foundation manufacturers and turbine manufacturers is complex, probably stemming from prior arrangements for onshore, which is clearly now a mature market.
For example, Bard has a specific frame agreement with Cuxhaven Steel Construction; Vestas said it doesn’t talk about its supply chain, and RePower is already a known user of jackets built at Burntisland.
StatoilHydro and Airtricity (now a unit of Scottish & Southern Energy) have sought to and successfully disrupted development of a European offshore manufacturing supply chain. Having selected Siemens Energy for the 300MW Greater Gabbard project, they placed the contract for foundations with the Chinese. This a first for East Asia, and it won’t be the last – and this is generating significant concern among UK companies keen to get involved but which are fearful of having this new market pulled from under their feet.
This is a notoriously private sector in terms of contract values. Efforts to get an insight while researching this piece have been rebuffed. Only MT Hojgaard, of Denmark, was a little forthcoming in contract-values terms, but just with the Sheringham Shoal project.
While there is a tendency for turbine manufacturers to currently keep much of the manufacturing in-house, including tower fabrication (Vestas is a good example), substructures are treated differently and contracted either directly by the developer or, more usually, the turbine manufacturer.
Most companies involved in substructures buy in the steel and execute the fabrication work in-house. There appears to be very limited contracting out, therefore not much in the way of subcontract opportunities.
Contracts flow remains stop-start. Prior to the global financial crisis, the view was that it was unlikely to develop into a steady flow until late-2009-2010.
However, Energy believes the sector will stall for about two years despite the scale of the opportunity, which is currently estimated by the European Wind Energy Association to be 120GW of offshore power generation capacity for the EU-27 by 2020. That said, it is possible that the latest incentives brought in for the UK in the 2009 Darling budget will unlock at least some of the current projects logjam, bearing in mind that there are some £10billion of “shovel ready” projects in the pipeline, according to the British Wind Energy Association.
ScottishPower’s decision to exit the UK-sector Thanet project is regarded as an example of current uncertainties, though Swedish utility Vattenfall has since stepped in to rescue the project. And, of course, Shell has dumped wind development activities in this country completely.
It is clear that there is significant crossover between several of the players in terms of who does what in fabrication, and a number of companies aspiring to break into the offshore foundations market have either not secured contracts or have carried out only limited work.
The companies that appear to have made the greatest progress are those with a North Sea oil&gas heritage as there is considerable linkage in technology terms between lightweight, minimum-facilities platforms built to exploit offshore hydrocarbons resources – notably natural gas – and offshore wind.
But it is relatively easy to get confused between companies that project-manage offshore wind developments versus those that actually carry out fabrication.
MT Hojgaard is a case in point. Market leader it may be, but this company relies on others to carry out the actual fabrication work. While it secured, for example, contracts for the UK Gunfleet (48 turbines) and Sheringham Shoal (90) developments, fabrication of the Sheringham foundations has been allocated to the Dutch Sif/Smulders JV.
SLP (UK), though it highlights foundations fabrication, until taking out a lease on the Tyneside Hadrian yard a few months ago, this aspect was contracted out.
SLP wants to capture both maritime renewable work and get back into offshore oil&gas fabrication and is marketing the yard as a dual-capability facility.
Aker Solutions (Norway) – has huge offshore fabrication pedigree which is expected to be put to good use.
It is also possible that offshore oil&gas fabrication heavyweight KBR might break into the market for integrated manufacture including sub-structures, having apparently expressed an interest in reopening the Nigg Fabrication yard on the Cromarty Firth.
It is important to realise that the offshore wind industry is currently stalling in the North Sea due to the credit crunch as debt is a major element of project funding. That said, new fiscal measures may help get British projects moving, whereas Belgium is currently dead in the water.
It is also important to realise that the offshore wind industry is still regarded as immature, with a poorly developed supply chain at this time – especially in the context of marine-specific aspects. This is reflected in the paucity of good supply-chain information in various reports, including those prepared for the UK Government. Neither the British Wind Energy Association nor the European Wind Energy Association appears surprised at the paucity of supply-chain hard facts. Both point to the lack of track record and the fact that, while there are many projects in planning, few are currently committed.
Pricing basically follows North Sea oil&gas industry practice and is on a per-completed-unit basis, according to market leader Sif (monopiles) and BiFab (jackets). Sif uses Ramboll to draw up each monopile separately, allocating man-hours, steel, coatings, and so on.
Capacity is measured variously in units and tonnes. For example, Weserwind’s objective is to grow output to 80 foundation structures (units) a year, whereas monopile specialist Sif says it can handle up to 120,000 tonnes a year of monopile fabrication – but, as explained in these notes, costs out on a per-unit basis.
That some turbine manufacturers might seek a per-tonne standard price for foundations is not surprising as huge numbers of turbines have been installed onshore, where construction practices are significantly different.
There is an enormous design and steel requirement variation in offshore projects, even for monopiles, while jackets are currently essentially semi-bespoke, as are tripods and tripiles. It has been pointed out that even steel piles come in widely varying lengths from turbine to turbine on the same project.
Thus far, there is little firm data regarding production costs of monopiles and tripods. The topic has been examined by the Copernicus Institute, Utrecht University, in The Netherlands, which acknowledges this situation.
However, cost development of the main raw material used (steel) was investigated. A key finding is that, around the middle of last year, the production costs of monopile foundations consisted roughly of 45-50% material costs (steel) and 50-55% production costs, which clearly includes the labour element – more so for structures such as tripods and jackets than monopiles, which are inherently simpler and, in relative terms, mass produced by Sif/Smulders, if none other.
The Copernicus notes that, while short-term price fluctuations may occur, it is assumed for the long term that steel prices will follow the general production cost trend of 1-2% per year.
“This results in a cost reduction of 5-10% of foundation costs until 2020,” it notes.
That should be made all the more possible the longer the current recession prevails.
Foundations account for 21% of the average cost of an offshore turbine, fluctuating 15-25% depending on design and location. The deeper the water and the greater the complexity, the greater the cost apportionment.
The Copernicus points out that, while short-term price fluctuations may occur, it is assumed for the long term that steel prices fall at about 1-2% per year. This could lead to a cost reduction of 5-10% in foundation costs by 2020.
The assumption made in 2003 was that the cost of installed turbines offshore would go down, ending up at roughly £1.3million per MW.
In fact, prices have gone up and we are now up around £3million per MW, according to Albert van der Hem, offshore project engineer at Dutch project management company Evelop.
This means that a typical 3MW unit would cost £9million installed, with £15million for a 5MW unit.
In terms of quantities of steel required by various projects, examples are:
Monopiles for Arklow Bank windfarm, measuring 5.2m in diameter and 40m in length, required 380 tonnes of steel per 3.6MW machine.
For Horns Rev I, piles for the 2MW turbines installed weighed only 200 tonnes and were standardised.
The approach changed with Kentish flats – 30 turbines, each with a tailored monopile to suit soil conditions.
Horns Rev II comprises 91 monopiles of diameter 3.9m and lengths of 30-40m, with a weight of 150-200 tonnes – a total of about 16,000 tonnes.
It is understood that a “typical” 5MW offshore turbine will require a monopile foundation some 50m in length, of 100mm thickness and weighing 750 tonnes. A further note is that each of these would require some 450m of weld length.
It is from such numbers that a rough estimate of the overall possible capital cost for the North Sea can be arrived at.
The point is that this really is a massive endeavour and one which could do a great deal to re-establish large-scale engineering manufacturing in Britain.
In the UK, five or six integrated yards should be established, such as Nigg, BiFab, SLP on the Tyne, Wilton Engineering on Teesside, and perhaps Birkenhead – and, of course, Belfast, where Harland & Wolff is, indeed, starting to carve out a niche for itself as an integrator.