Editor David Foxwell reviews the main trends and issues in the global offshore wind market in 2017
2017 will undoubtedly be remembered as a landmark year for the offshore wind energy industry.
It was a year in which the cost of energy from offshore wind fell steeply, making it competitive with new-nuclear and gas; in which new, more powerful turbines continued to be brought to market, with still larger units in development; in which more and more countries became interested in building offshore windfarms; and in which the world’s first floating offshore windfarm entered service.
2017 was also a year in which offshore wind’s ability to help regenerate manufacturing and create employment was finally recognised. As a result, 2018 will, it is anticipated, be the year in which in the UK offshore wind gets a ‘sector deal’ as part of the government’s industrial strategy, a kind of partnership between government and industry that, it is hoped, can boost productivity, employment, innovation and skills.
However, challenges remain: 2017 was also a year in which the industry woke up to the challenge of operations and maintenance. Given its fast pace of growth, with more and more turbines in operation and in need of maintenance, new ways of providing O&M are required.
Cost reduction creates new epoch
Astounding is not a word that is often used in the energy industry about contracts, but it is the right word for those handed out for new offshore windfarms in the UK, the Netherlands and Denmark this year.
The low price of recent contracts really was astounding. As Tom Edwards, a senior consultant at Cornwall Insight succinctly put it “The conclusion is this: the epoch of renewables as the most cost competitive technology has arrived.
“Even without the added and essential benefit of its zero-carbon footprint, policymakers would – at these prices – be hard pushed not to press ahead with bigger growth in renewables on cost grounds alone, even if there was not a legally binding carbon budget to achieve. There could be no greater accolade than that. A new paradigm has arrived.”
The low prices that won the latest round of the UK contract for difference auction are great news for the industry, the planet and UK bill payers. After the low results in Germany, the Netherlands and Denmark, there was hope the trend would continue in the UK, but perhaps, not so much expectation. The levelised cost of energy implied by recent contracts for difference in the UK demonstrated the same trend with those seen at Borssele 3 and 4 in the Netherlands and Kriegers Flak in Denmark.
As this was being written, the deadline was approaching for the first ever zero-subsidy, non-subsidised tender for offshore wind, the Hollandse Kust Zuid windfarms in the Netherlands.
As Dr David Toke, reader in energy politics in the Department of Politics and International Relations at the University of Aberdeen, noted in a recent comment on OWJ, the steep decline in the cost of offshore wind energy isn’t over, and the possibility exists of another 20% fall in costs, down to around £40 per MWh (US$54), well below UK wholesale power prices, which have been at £45/MWh recently.
The most recent UK auctions saw contracts issued at £57.50/MWh for the Hornsea 2 and Moray Firth windfarms. However, he said, it has been suggested from inside the industry that the cost of development has already fallen to around £50/MWh and that a further fall is one the cards.
Larger – potentially much larger – turbines are coming
Everybody understands that turbines are getting larger and that larger turbines are drivers of cost reduction. Developers talk to turbine manufacturers, and the manufacturers are saying that turbines will be larger – much larger – before long. This enables developers to plan for windfarms that will use fewer, larger turbines that will enable them to reduce costs. MHI Vestas is already testing a 9.5 MW turbine; Siemens Gamesa has unveiled a new 8 MW class offshore wind turbine, the SG 8.0-167 DD, with a rotor diameter of 167 m. Its B82 blades will allow for an 18% greater swept area and up to 20% higher annual energy production than its predecessor, the SWT-7.0-154, but these evolved turbines are only the beginning.
Hence, in November, Vattenfall said it is looking at using much larger turbines than those in place in the existing development in the Thanet extension project. The Swedish energy group did not specify how powerful the turbines might be, but when it launched the consultation for another project, the Norfolk Vanguard offshore windfarm, it said it was considering using turbines of 7-20 MW for the project.
20 MW is far larger – more than twice the size – than any turbine currently installed on any windfarm and well beyond the size and generating capacity of those currently available. That would certainly be the outer range of any new turbine in development, but DNV GL is already reviewing multiple turbines for certification that could generate more than 10 MW. Getting to a 20 MW turbine could take several years, and would probably need some form of disruptive technology, but is not out of the question.
Export markets proliferate
Never mind the US, Taiwan, China, India, South Korea and a host of other countries, offshore wind projects seem to be springing up everywhere.
Floating offshore wind
Amid all the euphoria about low prices and froth of expectation about new, larger turbines, it’s easy to forget how young the offshore wind industry really is and how promising Offshore Wind 2.0 – floating offshore wind – is. Almost every project to date has used bottom-fixed turbines but floating offshore wind has the capacity to revolutionise the industry.
Hywind Scotland, the world’s first floating offshore windfarm, started to deliver electricity to the Scottish grid in 2017. The first floating offshore wind turbine to be installed in French waters, Floatgen, is due to enter into operation early in 2018, having been inaugurated by France’s minister of state for ecological and inclusive transition, Sébastien Lecornu, on 13 October 2017.
As RenewableUK’s chief executive Hugh McNeal said this year “No one should be in any doubt about the size of that possibility, of the prize that we are discussing, or the benefits it could bring.”
Industry experts point to the opportunities for floating wind to follow the same cost reduction trajectory as fixed offshore wind. They say it can share in the technology advances made in the wider offshore wind sector. Cost savings from assembling turbines ashore before towing them out to sea and the use of lower-cost vessels also offer cost reduction opportunities. Most importantly, they say, using floating platforms means being able to position turbines further from shore in areas of greater wind resource.
As Wind Europe’s chief executive Giles Dickson said recently of the Portuguese market (another export market to add to the list) the country could be set to benefit significantly from floating offshore wind energy. Portugal’s 5 GW of onshore wind power already covers a quarter of the country’s electricity demand. By 2030, this share could grow to 39%, because Portugal is expected to return to the offshore wind market.
2017 also saw Norway commit to one or two demonstration sites for floating offshore wind, not because it plans to build offshore windfarms but because Norway is the ‘go to’ country for things that float offshore. It has massive expertise in floating offshore structures that it wants to export.
Consolidation – an opportunity and an issue
The offshore wind energy industry is in transition. The number of turbine builders is declining as consolidation takes place. Might that be an issue as demand ramps up? Potentially, yes.
On 3 April 2017, the merger between Siemens Wind Power and Gamesa came into effect. In September 2017, the newly merged entity confirmed plans to discontinue manufacturing the Adwen AD8 offshore wind turbine and will supply its D8 platform to upcoming French projects. Senvion is developing a 10 MW machine.
As Bruce Valpy at BVG Associates told OWJ back in January 2017, the small number of players is barely enough to drive competition.
Second, the offshore turnover of each player in the market might not be enough to facilitate next-generation turbine development, which is one of the keys to ongoing cost reduction. As he also noted, it is not out of the question that – with main players left in the market picking up the bulk of orders – capacity at one or more of those players could be severely constrained in the 2018/2020 period.
Larger and larger turbines have been identified as the most important driver of cost reduction, but cost reduction in operations and maintenance (O&M) will also be paramount and have a fundamental impact on the supply chain. Offshore wind power has developed into a mature marketplace. It has proved its worth, but it became clear in 2017 that, having done so the industry now needs to focus more closely on plant maintenance.
It is obvious that, as assets age, maintenance costs tend to increase. Now that there are significant numbers of wind assets entering late life, balance of plant degradation is a growing issue. Operators need to ensure that their long-term maintenance strategies are ‘right-sized’ to ensure that long-term opex is minimised so that levelised cost of energy gains are leveraged.
There is also a dearth of contractors of scale in the later life space that can truly deliver integrated services, such as topsides inspection, maintenance and repair which encompasses balance of plant, tying together all project management and the structural and electrical elements of work programmes. We know from experience that an integrated contractor model like this is game-changing. If you increase the number of skills a team has, then you reduce the number of personnel being deployed and the number of vessel trips. Labour and logistics costs are transformed.
Some windfarm operators maintain balance of plant themselves and contract in any expertise they do not have inhouse; others give all the work out in the form of large service contracts. However, to date, the parties that have won large-scope balance of plant maintenance contracts subcontract packages out to specialist companies. Undoubtedly, the need to reduce O&M costs will force windfarm operators to look closely at their balance of plant service strategies in the coming years.
The effect of cost control on the balance of plant service sector has yet to be determined and has those in the sector wondering what the outcome will be. There is no clear path, and a variety of different scenarios will evolve, depending on the inhouse capabilities and ownership structures of the windfarms. The larger, integrated windfarm operators such as Orsted (formerly Dong Energy) or Statoil may wish to leverage costs they have already sunk in a project in inhouse service ability and eliminate the middle men; non-operating owners such as Blackrock or Northland Power may look to further delegate responsibility through large service contracts.
The latter approach would encourage consolidation and integration, with a few large multiskilled service providers emerging with the financial capability to assume the liability of lump sum contracting. The third option is to maintain the status quo of ‘divide and conquer’, where windfarm operators contract a large number of small parties and use the power of ‘survival of the fittest’ to drive down costs.