Accenture Changing Scale Offshore Wind

8/11/2019 Accenture Changing Scale Offshore Wind

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Changing the Scale ofOffshore WindExamining Mega-Projects in the United Kingdom


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Contents

1 Offshore wind mega-projects in theUnited Kingdom1.1 Market context: Offshore wind in the United KingdomThe Electricity Market Reform white paperThe Renewables Obligation (RO) Scheme: Already a billion-pound market

1.2 Costs and timelines for offshore wind projects

1.3 Mega-projects as a key driver of competitiveness

Leading practices in capital projects management

2 Key challenges for offshore windmega-projects2.1 Turbine supply chainCase study: Forewind

2.2 Vessel contractingCase study: SeaEnergy PLC

2.3 Development and HSE: Leveraging the experienceof offshore oil and gasCase study: Offshore wind: A perspective from oilfieldservices companies

2.4 Grid integration of offshore windNatural gas as the current technology of choice forbackup of intermittent generation

2.5 Other considerations and challenges

3 ConclusionsImplications for key players

4 Glossary

5 Authors

6 Reference

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Offshore windmega-projects in theUnited Kingdom

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Wind is one of the United Kingdoms

(UK) most plentiful renewable energyresources. Studies show that, as anation, the UK has the most favourableconditions for offshore wind powergeneration in Europe and perhapsin the world1. According to industryassociation RenewableUK (formerlythe British Wind Energy Association),the electricity generation potential ofUK offshore wind alone2 could amplyexceed the countrys total electricitydemand requirements3 .

This plentiful source of clean andrenewable energy is a key piece of theUKs strategy to meet its ambitiousclimate change and renewable energycommitments. At the European Union(EU) level, the 2009 Renewable EnergyDirective stipulates that 15 percentof the UKs final energy consumptionshould come from renewable energyby 2020, up from 3 percent in 20104 .In parallel, the current carbon budgetunder the UK Climate Change Act (CCA)

of 2008 aims to reduce the countrysgreenhouse gas (GHG) emissions byat least 34 percent by 2020 and by atleast 80 percent by 2050 (on a 2010baseline)5 . The CCA is also geared todeliver the UKs share of the emissionsreduction targets adopted under theEUs Emissions Trading Scheme directive(EU ETS). The ETS is the key instrumentfor achieving the EUs proposed targetsto the United Nations FrameworkConvention on Climate Changes(UNFCCC) negotiations.

The UK government has adopted a

series of policy measures to stimulatethe progressive deployment of offshorewind which, alongside other renewableenergies, is expected to play a crucialrole in attaining these challengingobjectives. To date, these policieshave proven effective in attractinginvestment and supporting the sectorsgrowth, as evidenced by the rapidlyincreasing capacity and electricityproduction of offshore wind, as well asby the diversity of investors. Installedcapacity of offshore wind turbineshas more than doubled since 2008,reaching some 1.3 gigawatts (GW)in 20106 , or about 1.5 percent of theUKs total generation capacity, andplacing the UK as the global leaderin installed offshore wind plants7.The 15 currently operational offshorewind farms, which have average loadfactors that are typically much higherthan for onshore wind, produced about1 percent of 2010 total electricityoutput in the UK (approximately 3

TWh)8 . Notwithstanding, a steepincrease in offshore wind capacitygrowth is still required if therenewable energy and emissionsabatement targets are to be met.

A supportive regulatoryframeworkThe Office for Renewable EnergyDeployment (ORED) is the administrativebody tasked with ensuring the

attainment of the UKs renewableenergy targets. OREDs activity relevantto offshore wind is focused on:

Providing financial support for

renewables. In the summer of 2011,the UK government published theElectricity Market Reform (EMR)white paper9 (see sidebar on page9). The EMR seeks to adopt a seriesof framework initiatives to providelong-term, comprehensive and targetedsupport for low-carbon generation andrenewable technologies. Currently, theprincipal incentive supporting offshorewind development is the RenewablesObligation (RO, see sidebar on page9), but other support mechanisms(such as the proposed feed-in-tariffswith contracts for difference) areexpected to bring additional support.

Unblocking barriers to delivery. Thesecond main component of OREDsmission is to identify and address issuesthat affect the timely deployment ofestablished renewable technologiesincluding the planning system, supplychains and grid connection.

In addition to the RO and the plannedelements of the EMR, the UK RenewableEnergy Roadmap 10 , published alongsidethe EMR white paper, lays down a setof supplementary policies, measuresand support programmes to furtherstimulate the development of theoffshore wind industry. In particular,these measures seek to remove a seriesof barriers that have been identifiedas limiting factors to the developmentof the offshore wind industry. Theseprogrammes include11:

1.1Market context: Offshorewind in the United Kingdom


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Supporting innovation to reducecosts: The government will provide upto 30 million in 2011-2015 to reducecosts through technology developmentand demonstration. It will establishan offshore renewables Technologyand Innovation Centre (TIC). A25-million investment from the EnergyTechnologies Institute (ETI) will go to a

drive-train test facility at the NationalRenewable Energy Centre (NaREC).

Developing the supply chain: Upto 60 million for the developmentof wind manufacturing facilitiesat ports will be provided by thegovernment, as well as some 70million from the Scottish governmentto strengthen port and manufacturingfacilities for offshore wind turbinesand components in Scotland.

Minimising investment risk: Thegovernment will complete theaccelerated banding review of theRO, implement electricity marketreform and put in place EMR-ROtransition arrangements.

Accessing finance: Offshore windwill be a strong candidate for supportfrom the Green Investment Bank(GIB)12 . The UK government willwork with developers and investorsthrough the Offshore Wind DevelopersForum13 to identify the investmentcapital required for offshore windand whether further government

action is appropriate. The governmentwill take action to reduce investoruncertainty in relation to oil and gasclauses in offshore wind farm leases.

Ensuring cost-effective gridinvestment and connection: TheOffshore Transmission CoordinationProject review14 of incentives forcoordination will be performed toensure coordinated development ofmedium-term (Round 3) offshoretransmission assets. The review willdevelop a long-term position on securityrequirements for grid connection.

Planning and consenting: Managethe potential impacts of offshoredevelopments on other users ofthe sea and broader environmentalconsiderations through publication ofan Offshore Strategic EnvironmentalAssessment15 . Identify and, whereappropriate, manage potential delays toconsenting decisions.


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Outlook for offshore windin the UKThe Renewable Energy RoadmapsRenewable Energy Strategy leadscenario suggests that, by 2020, about30 percent of electric power could comefrom renewable sources, compared toaround 6.7 percent in 2010 16 . Offshorewind will have a central role in deliveringthose ambitious objectives.

The central range of estimates by thegovernment indicates that some 18GW of offshore wind power could beoperational by 2020, growing to 40GW by 2030 (see Figure 1). Separatefrom the 4.2 GW expected to beoperational over the next 24 monthsor so (see Figure 2), achieving the 2020target implies a compound growth

rate of 20 percent/year. Assumingdeployment of wind farms at that scaleand using offshore turbines with acapacity of 5 MW, meeting the targetwould represent a demand of some360 offshore wind turbines/year. Thislevel of demand and deployment willhave important implications and willrequire significant changes acrosscomponent supply chains, logisticsand services, as well as health, safetyand environmental management.

Indeed, the rapid pace of requiredgrowth in UK offshore wind capacity andgeneration is prompting the developmentof what in this paper we are referring toas mega-projects; that is, wind farmswith capacities in excess of 800 MWroughly the size of a utility-scale largecoal- or natural gas-fired plant. The sizeand complexity of developing projectsof this size offshore is similar to a smallfield development in the North Sea.

Offshore wind mega-projects arealready on their way. The UK CrowneEstate, which is the landlord of the UKsseabed, has carried out three roundsof tenders for leasing the seabed foroffshore wind projects17 . In Rounds 1and 2, which respectively took place in2001 and 2003, leases for some 8 GWof potential capacity were awarded towinning applicants. The average projectsize in Round 1 and Round 2 was,respectively, approximately 100 MW andapproximately 400 MW.

In 2010, Round 3 was concluded,awarding winning applicants the leaseof areas with a potential to install up to32 GW of offshore wind power. In starkcontrast to the two previous rounds,the average project size in Round 3 wasapproximately 1 GW. Construction hasalready begun for one of these mega-projects, and an additional 11 mega-

projects are in the planning stages (seeSection 1.3).

These mega-projects will havesignificant and diverse effects, notonly across the wind industrys valuechain in the UK and beyond, butalso across the electricity and fuelvalue chains. This Accenture paperassesses and discusses the challengesof such mega-projects and theirpotential implications for the relevantplayers across the energy industry.

In this paper, we review the keychallenges facing the offshorewind industry and explorepotential solutions, including:

Key bottleneck areas in the value chainsuch as the turbine supply chain andvessel contracting.

Offshore infrastructure developmentand health, safety and environment(HSE).

Grid integration and intermittencymanagement.

Other considerations and challenges,including access to finance, consentingand R&D programmes.

In our concluding remarks we look atsome of the expected implications onwind and broader energy industry playerssuch as:

Utilities. Oil and gas companies.

Turbine manufacturers.

Oilfield service providers.

Vessel contractors.


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Figure 1. Deployment potential to 2020 for offshore wind in the UK.

Figure 2. Existing capacity and planned pipeline of offshore wind projects in the UK.

Terawatt-hours (TWh)

Industry low Industry high Central range

90

18 GW

11 GW

80

70

60

50

40

30

20

10

02010 20122011 20202019201820172016201520142013

10,000

Megawatts (MW)

8,000

7,000

5,000

4,000

3,000

2,000

1,000

0

Operational Underconstruction

Consented In planning Total

1,858

2,359

1,224

3,675

9,116

6,000

9,000

Source: UK Renewable Energy Roadmap, July 2011, UK Department of Energy and Climate Change, www.decc.gov.uk.

Source: Accenture analysis and UK Renewable Energy Roadmap, July 2011, UK Department of Energy and Climate Change, www.decc.gov.uk.


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In July 2011, the UK governmentpublished the document, Planning ourelectric future: a White Paper for secure,affordable and low-carbon electricity.The document, now referred to as

the Electricity Market Reform (EMR)white paper, sets out key measures toattract investment, reduce the impacton final prices, and create a secure mixof electricity sources including gas,new nuclear, renewables, and carboncapture and storage. Most of themain components of the EMR packagewill have a direct or indirect effecton offshore wind investments andoperations and include:

A carbon price floor to reduce investoruncertainty stemming from pricevolatility in the EU ETS by putting a fairand minimum price on carbon emissionsand provide a stronger incentive toinvest in low-carbon generation now.

A feed-in-tariff with contracts fordifference (FiT-CfD) to provide stablefinancial incentives to invest in all formsof low-carbon electricity generation.

An emissions performance standard(EPS) set at 450 grams (g) carbondioxide (450g CO2)/kilowatt-hour (kWh)to provide a clear regulatory signal onthe amount of carbon new fossil-fuelpower stations can emit.

A capacity mechanism , for demandresponse as well as generation.

The government plans to legislatefor the key elements of EMR inspring 2012, and for legislation tobe implemented by the end of spring2013, with a view for the first low-carbon projects to be supportedunder its provisions around 2014. Thegovernments 2012 budget confirmedongoing support for these plans18 .

The Electricity Market Reform white paper

The main policy supporting UK offshorewind development and other renewablesis the Renewables Obligation (RO),which came into force between 2002(England, Scotland and Wales) and2005 (Northern Ireland). The RO is anobligation on electricity suppliers tosource a specific and annually increasingproportion of electricity from eligiblerenewable sources or pay a penalty19 .The obligation side of the RO schemeis similar to the Renewable PortfolioStandards used in other markets such asthe United States 20 , effectively creatinga monetary incentive for suppliers(through prospect of a penalty) toincrease the share of renewable powerin their supply portfolio.

The RO scheme also providescompliance flexibility and economicefficiency through the issuanceand trade of Renewable ObligationCertificates (ROCs). The Office for Gasand Electricity Markets (Ofgem), theUK market regulator, administers ROCsto qualifying installations producingrenewable power. These ROCs canthen be sold by generators directly toelectricity suppliers or traders, andcan be traded separately from thephysical electricity supply to which theyrelate. This has created a market forROCs which, in addition to providinga monetary incentive to investors inrenewable power via revenues from ROCsales, serves to deliver greater economicefficiency by leveraging the forcesof supply, demand and competition

in pricing the ROCs. ROC trading isadministered by the Non-Fossil PurchaseAgency (NFPA), which connects buyersand sellers of ROCs through electronicauctions (e-ROC).

Since 1 April 2009, the amount ofelectricity to be stated in a ROC hasdepended on the technology used togenerate the electricity, a change tothe original scheme that is referred toas banded RO. Prior to that date, oneROC was awarded for each megawatt-hour (MWh) of renewable electricitygenerated. With the introductionof banding, different generationtechnologies receive different numbersof ROCs depending on their costs andpotential for large-scale deployment.

The Renewables Obligation (RO) Scheme:Already a billion-pound market


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ROC banding for different renewable generation technologies.

Offshore wind 1.5 ROCs/MWh2 ROCs/MWh for stations or capacityaccredited between 01/Apr/2010 and31/Mar/2014

Onshore wind 1 ROC/MWh

Wave and tidal 2 ROCs/MWh

Dedicated energy crops 2 ROCs/MWh

Advanced gasification and pyrolysis andanaerobic digestion

2 ROCs/MWh

Sewage gas receives 0.5 ROCs/MWh

Landfill gas 0.25 ROCs/MWh

Technology ROC band

Source: Renewables Obligation, UK Department of Energy and Climate Change, www.decc.gov.uk.

The obligation levels for 2010-2011were 0.111 ROCs/MWh of electricitysupplied to customers in England, Walesand Scotland, and 0.0427 ROCs/MWhof electricity supplied to customers inNorthern Ireland21 . In 2011-2012, thelevel of the obligation will increase to0.124 ROCs/MWh supplied in England,Wales and Scotland, and 0.055 ROCs/

MWh supplied in Northern Ireland.

Suppliers meet their obligations bypresenting sufficient ROCs to Ofgem tocover their obligation. Where suppliersdo not have sufficient ROCs to meettheir obligation, they must pay anequivalent amount into a fund knownas buy-out, the proceeds of whichare paid back on a pro-rated basis tothose suppliers that have presentedROCs, an additional incentive. Thegovernment policy intent in the 2010amendment orders is that Great

Britain suppliers will be subject tothe RO until at least 31 March 2037,and those in Northern Ireland untilat least 31 March 2033. The buy-outprice for the 2011-2012 complianceperiod was set at 38.69 per ROC22 .

Between 1 April 2009 and 31 March2010, Ofgem issued 21.2 million

ROCs (representing 20.3 GWh ofrenewable electricity generation)23 .Between January and December2011, the average price for ROCssold via e-ROC auctions was 47.95/ROC, for 712,000 ROCs auctionedover the period24 . This suggests anannual value of the electronic ROCmarket of some 34 million. The valueof the full ROC market, assuming anannual issuance of some 24 millionROCs25 and a unit price of 48/ROC, would be about 1.15 billion.


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1.2Costs and timelines foroffshore wind projects

At first glance, a wind turbine may

appear as mechanically simpler thantraditional electricity generationtechnologies; however, the developmentof an offshore wind farm is a technicallycomplex, lengthy, risky and capital-intensive process. In fact, offshore windis still an emerging technology whosecompetitiveness vis--vis traditionalgeneration technologies such as gas-and coal-fired plants in the UK is, inpart, made possible by governmentsupport schemes such as the RO.Without such support, commercial-scaleinvestments in offshore wind would notmaterialise under the current energymarket conditions26 .

One of the necessary conditionsfor offshore wind to become asustainable, mature and competitivepower generation technology (i.e.,one that is commercially attractivewithout government support, relativeto competing alternative generationtechnologies), is the need for investment

costs to significantly decline. In a recentreport27, the European Wind EnergyAssociation forecast that Europe mayhave some 40 GW of offshore wind by2020. Such a deployment of offshorewind capacity would require a quiterapid investment and constructionprogramme, moving from about 1GWinstalled/year in 2011 to more than 6GW/year in 2020, and a cumulativeinvestment of some 55 billion over thatsame period.

To attract the substantial investmentsrequired to deliver this scale of growth,the offshore wind industry will needto demonstrate a trend of increasing

competitiveness relative to other power

generation technologies. Indeed, implicitin EWEAs forecasts and estimates is adeclining investment cost per MW ofinstalled offshore wind plant, which isillustrated in Figure 3. EWEAs figuressuggest that investment costs wouldhave to decline over the next decadefrom the current 2.3 million/MW to1.3 million/MW in 2020. This representsa 46 percent reduction in investmentcosts over the period, equivalentto a compound annual growth rate(CAGR) of -6 percent. Similar projectedcost reductions for the UK haverecently been published in a reportcommissioned by the Department forEnergy and Climate Change (DECC)28 .

A typical offshore wind project iscomposed of three phases: investment,operation and decommissioning (seeFigure 4). Capital spend is greatestin the investment phase, which canaccount for up to 80 percent oftotal project funds. Of total capital

expenditure (CAPEX), the turbine, itscomponents and structure account forthe majority of investment, requiring50 to 80 percent of the total. Dueto the nature of the offshore marineenvironment, the development andconsenting component can absorb upto 10 percent of capital requirements,while the installation phase canrequire up to 15 percent of CAPEX.

The development and constructionof an offshore wind project can alsobe of considerable length, with theinvestment phase necessitating upto nine years between inception andconsenting, to handing the project

over to the wind farm operator.

During the investment phase, themajority of time is spent in planningand obtaining consent, activities thatcan take up to five years and requireup to 10 percent of total capitalexpenditure to be spent well beforethe final investment decision is made.

Large capacity offshore wind farms havenot yet been tested at scale and overa full life cycle, but they are expectedto have a life span of 20 years or more.During this operations phase, thedifficult offshore marine environmentmeans that a large portion of operationsand maintenance (O&M) costs need tobe dedicated to vessels and equipment.

The development, construction andoperation of an offshore wind farmis a therefore a lengthy, risky andcapital-intensive project. Importantcost reductions across all stages of theinvestment and operations phases willbe required to make offshore wind atechnology that is competitive withother power generation alternatives.Cost reductions are thereby a necessarycondition to achieve the UKs ambitiousoffshore wind capacity targets.

Accenture believes that the emergenceof mega-projects will be a significantforce in helping deliver those requiredcost reductions. The remainder of thispaper examines how mega-projectswill transform the offshore industrythrough the demands it will place on key

components of the value chain.


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Figure 3. Planned capacity growth of offshore wind in Europe and expected evolution of investment costs.

Forecast new capacity build (MW) Investment cost (million /MW)

8,000

Megawatts (MW) Million /MW

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0 0

2

1

3

4

5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Accenture calculations; Wind in our Sails: The coming of Europes offshore wind energy industry, European Wind Energy Association, 2011 www.ewea.org.

Figure 4. Offshore wind project life cycle.

1.5-2.5 years1-2 years4-5 years 20+ years 1-2 years

Turbine manufacture

Operations/maintenance

Componentmanufacture Installation

Support servicesDecommissioningDevelopment

CAPEX 70-80% OPEX 20-30%

Development andconsenting5-10% of CAPEX Installation10-15% of CAPEX

O&M(Vessel and equipment)20-30% of OPEX

Decommissioning0-5% of OPEX

Components andstructure20-30% of CAPEXTurbine30-50% of CAPEX

Regulatory uncertainty Costly surveys Risk bias on developers

Lack of risk sharing Insufficient capacity

Multiple contracting Lack of standardisation

Constrained vessel supply and lack of bespoke vessels Inefficient logistics Bottlenecks in grid connectivity

Heavy dependence on subsidies Reliability

Low EOL value Recyclability

Large scope for technology and logistics improvements

Notes:Timing based on installation of a 100-turbine, 300-MW wind farm in 25 metre water depth.Cost percentages are rough averages of publicly available data.CAPEX = capital expenditure; EOL = end of life; OPEX = operational expenditure.

5-7 years

Source: Accenture analysis.


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1.3Mega-projects as a key driverof competitiveness

According to UK government estimates

in the Renewable Energy Roadmap29

,in 2010, the levelised energy cost30of offshore wind was in a rangebetween 149 and 191 per MWh.To make offshore wind competitivewith unsubsidised power generationtechnologies such as combined cyclegas turbines, the levelised cost ofoffshore wind would have to declineto somewhere nearer to 100 perMWh. Achieving this reduction wouldnecessitate a major cost savings ofbetween 30 and 50 percent.

With this scale of cost-reductionrequirements, even an industry-wideimplementation of leading practices intodays scale of offshore wind farms(100 to 300 MW) would not sufficeto drive down costs to make offshorewind competitive with traditionalpower generation technologies.Research by IPA31 indicates thata majority share of large, complexcapital projects carried out since 1993,

such as large-scale power plants oroffshore oil and gas platforms, havebeen unsuccessful or suffered fromcost overruns. Accenture experiencehas shown that the implementationof leading practices in managinglarge capital projects can achievecost reductions of up to 20 percentper billion dollars of capital. Whilesubstantial, such savings still fall shortof the important reductions requiredto make offshore wind competitive:enter the quest for economies ofscale through mega-projects 32 .

Figures 5 and 6 show the main offshore

wind projects worldwide and the trendtowards mega-projects. Noteworthy isthe fact that the bulk of mega-projectsglobally are expected to be constructedin the UK (more than 70 percent of theidentified planned projects), makingthe country a pivotal geographyfor the successful development anddeployment of this technology.

The capacity of mega-projects issignificantly larger and, in many cases,an order of magnitude greater than anywind farm currently in operation. Theemergence of such mega-projects bringsabout the potential to significantlydrive down costs in offshore winddevelopment. Indeed, there is ampleproof in the energy industry thatincreasing project size is a substantialdriver of cost reduction. This point hasbeen shown in the development ofnuclear plants, and of oil and liquefiednatural gas (LNG) tanker vessel size andLNG liquefaction units, among others.

By moving from the current project sizeto mega-projects, some examples ofareas where economies of scale could beachieved are:

Better risk sharing and more efficientcontracting.

More cost-effective geologicalsurveys.

Greater competition puttingdownward pressure on prices across

parts of the value chain.

Greater appetite for investing in

optimising and integrating supplychains.

Larger turbine size and next-generation technologies forsubstructures could jointly deliver lowerinstallation costs, greater power outputper unit of investment (greater energycapture) and lower operations cost.

Faster and safer installation andoperations could be facilitated by alarger fleet of bespoke and specialised

vessels for offshore wind.

More mature technologies andprocesses would perform with higherreliability, reducing operating costs andhealth and safety issues.

Figure 7 provides greater detail ofcandidate areas where the scaleof mega-projects could impactcomponents of the offshore windproject life cycle.


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91

10090

Offshore wind farms - operational

Distance from shore (km)

Project capacity (MW) - logarithmic

Bubble size: number of turbines

Mega-projects100

100 1,000 10,000

50

0 5451

Thanet Rdsand II Horns Rev II Lynn and Inner DowsingWalney I

Figure 5. Evolution of offshore wind farm size: from projects to mega-projects.

88

75

Offshore wind farms - under construction


Mega-projects100

100 1,000 10,000

50

0

175140

80


Bubble size: number of turbines

London Array BARD Offshore 1 Greater Gabbard Sheringham ShoalLincs

Offshore wind farms - planned


Mega-projects100

100 1,000 10,000

50

0

720

420

400

350150


Bubble size: number of turbines (assumes 10 MW turbines)Bristol Channel Irish Sea Norfolk Bank HornseaFirth of Forth



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Project name Country Number ofturbines

Distancefrom shore(km)

Size(MW)

Mega-project?

Consortium members

OperationalThanet UK 100 11 300 No Vattenfall

Horns Rev II Denmark 91 30 209 No DONGRdsand II Denmark 90 9 207 No E.ONLynn and InnerDowsing

UK 54 5.2 194 No Centrica

Walney I UK 51 14 184 No DONG & SSE

Under constructionLondon Array UK 175 20 1,000 Yes DONG, E.ON, MasdarGreater Gabbard UK 140 23 500 No SSE, RWE npowerBARD Offshore 1 Germany 80 90 400 No Enovos, BARD GroupSheringham Shoal UK 88 17 315 No Scira (Statoil & Statkraft)

Lincs UK 75 8 270 No CentricaPlannedDogger Bank UK TBC 125 9,000 Yes SSE Renewables, RWE npower

Renewables, Statoil and StatkraftNorfolk Bank UK TBC 53.5 7,200 Yes Scottish Power Renewables and

Vattenfall VindkraftIrish Sea UK TBC 15 4,200 Yes Centrica Renewable Energy and

involving RES GroupHornsea UK TBC 34 4,000 Yes Mainstream Renewable Power and

Siemens Project VenturesFirth of Forth UK TBC 22 3,500 Yes SSE Renewables and FluorGreat Lake Array Canada TBC TBC 1,600 Yes Trillium Power Wind CorporationArgyll Array UK TBC 5 1,500 Yes Scottish Power RenewablesBristol Channel UK TBC 14 1,500 Yes RWE npower RenewablesFinngrunden Sweden 300 40 1,500 Yes WPD OffshoreMoray Firth UK TBC 28 1,300 Yes EDP Renovaveis and SeaEnergy

RenewablesDelta Nordsee 1 Germany 286 39 1,255 Yes E.ONMrevind Norway TBC TBC 1,200 Yes TrnderEnergi Kraft ASTriton Knoll UK TBC 32 1,200 Yes RWE npowerCodling Ireland 220 13 1,100 Yes Fred Olsen Renewables/ Treasury

HoldingsIdunn Norway TBC TBC 1,100 Yes Fred Olsen RenewablesStadviind Norway TBC TBC 1,080 Yes Vestavind Kraft ASgir Norway TBC TBC 1,000 Yes Oceanwind ASSrlige Nordsjen Norway TBC TBC 1,000 Yes Lyse Produksjon ASBohai Bay China TBC TBC 1,000 Yes CNOOCAiolos Germany 197 120 985 Yes WPD OffshoreInnogy Nordsee 1 Germany 162 40 985 Yes RWE InnogyBeatrice 2 UK 184 13.5 920 Yes SSE Renewables, Repsol Nuevas

Energies

Inch cape UK 180 22 905 Yes Repsol Nuevas EnergiesIsle of Wight UK TBC 20.7 900 Yes Eneco New Energy

Figure 6. Large offshore wind projects and mega-projects.

Sources: Accenture and RenewableUK. Used with permission.


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Figure 7. Evolution of offshore wind project life cycle and candidate areas of cost reduction.

As is

To be

Turbine manufacture

Operations/maintenance

Componentmanufacture Installation

Support servicesDecommissioningDevelopment

Expensive seabedsurveys

Lengthy licensing Multiple contracts for

development phase Limited risk sharing

Atomised supply chains Lack of standardisation 5MW gearbox units Monopile and space

frame substructures Many onshore

technologies andpractices transferred tooffshore

Nascent servicessector

Supply shortage Adapted vessels Bottlenecks in grid

connectioncomponents

Revenues fromsubsidies

Source of intermittency require costly firmingand grid upgrades

Nascent services sector HSE issues high

insurance costs

Optimised supplychains

Standardisation forcomponents

Double-digit MWdirect drive and hybridunits

Second-generationsubstructures using oiland gas industrytechnology

Bespoke offshoretechnologies

Mature services sector Bespoke vessels Adequate supply of all

installationcomponents

Improved energycapture and reliability

Compete with allgenerationtechnologies

Behave as baseload,through storage andadequate gridintegration withback-up capacity

Mature services sector Limited HSE issues

reduced insurance costs

Developeddecommissioningsector

EOL value for turbinecomponents

Good recyclability

Little experience ofdecommissioning

Low recyclability ofcertain components

High decommissioningcosts

Efficient surveytechnology from oiland gas

Streamlined licensing End-to-end

contracting More balanced risk

sharing



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Leading practices in capital projects managementAs shown in the figure below, themanagement of large capital projectsis composed of six key phases, andincludes initial business strategy,licensing and permitting, design

engineering, procurement, constructionand commissioning, and operations.

Accenture experience has shown thatthe implementation of leading practicesacross each of these phases has thepotential to unlock significant benefitsby achieving savings and deliveringefficiency and performance gains. Thebenefits, which can be up to 20 percent

savings per 1 billion in capital spendand deliver up to 5 percent increases inoperating margin, are achieved through:

Process efficiency improvements.

Greater assurance of configurationcontrols.

Optimised sourcing and procurementstrategies.

Tight control of vendor execution andadherence to schedule.

Increased availability of plants atoperatorship handover.

Standard and leading practices in capital projects management and scope of benefits .

Typical benefits

Leading practice

Standard practice

Business strategy Licensing and permitting Design engineering

Benefits are realised in subsequentproject phases

Clear strategy is defined and guides allproject decisions

Short-term focus, less than five-yearplanning horizon

Project risk measures not clearly definedand integrated into the overall capitalallocation plan

Strategy is defined on a project-by-project basis and not inclusive of EPCconsiderations

Loose integration of licensing changemanagement processes with EPC vendors

Licensing documents managed on aproject-by-project basis

Permitting and licensing function largelymade up of external contractors

Manually intensive processes to reconcileengineering deliverables

Multiple vendors perform engineeringactivities for a single project

EPC vendors own engineering processes,owner-operator performs scope approvals

Strategy governs EPC decision-makingprocesses

Portfolio strategy where all projects areoptimised

Project risk measures standardised for allprojects

Internal staff with deep regulatoryrelationships make up organisation

Licensing function builds an integratedschedule with regulatory agencies

Licensing processes are tightly integratedwith EPC vendors to reduce rework

Reuse of content is embedded into theoverall structure of the licensingdeliverables

The owner-operator has a definedinformation strategy embedded intocontractual obligations

Heavy use of a 3-D model to identifycross-vendor engineering discrepancies

Tight engineering change control processesin place to identify deltas betweenrevisions and maximise impact onoperational output

Use of information standards (ISO 15926)to drive data exchanges and collaboration

Longer-term focus, with multipleplanning horizons

15-25% savings in licensing costs,achieved through process efficiencyimprovements

2-5% savings per 1 billion in capital spend,achieved through greater assurance ofconfiguration control associated with adesign change



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Typical benefits

Leading practice

Standard practice

Procurement and engineering,procurement and construction (EPC) Construction and start-up Operations

Cost-driven approach to loweringup-front component costs, versus totalcost of ownership for the asset

Lack of transparency into sub-supplierrelationships (EPC owns relationship withsubs)

Sourcing strategy is not inclusive of allprojects within a capital portfolio

Tracking and payment of contractorclaims against a specific contract orgroup of contracts is labor-intensive

Lessons learned are not tracked andshared across projects or functions

PMO processes are established on aproject basis, without an overall standard

Operations spends the first few yearsuncovering design and construction flaws

Lack of information transparency results infrequent data requests to obtain keyoperational data

Asset start-up and initial operationsheavily supported by engineering and EPCvendors

Optimisation of procurement for criticalitems across a portfolio of capital projects

Leverage sourcing strategies to reduce

up-front costs and long-term spare part issues

Assured design changes with equipment,constructability and assets are identifiedand managed early in the procurementprocess

Systematic management of EPC vendor andsub-supplier relationships to optimise thevalue delivered

Well-defined PMO structure and methodol-ogy, including processes, project controlsand earned value metrics

Automated tracking and payment ofcontractor claims using tools that feedcost data to the project schedule

Integration of quality assurance and lessonslearned processes to ensure continuousimprovement across multiple projects

Engineering data feeds training andstart-up processes

Engineering and EPC vendor supportfocused on providing future services,lowering long-term O&M costs

Operations uncovers design andconstruction flaws during the trainingand procedure authoring process

Information turnover has been performedprior to operations, enabling bettermaintenance efficiency

Performance and trending data sharedwith key business partners

5-8% savings per 1 billion in capital spend,achieved through execution of strategicsourcing and procurement strategies

3-6% savings per 1 billion in capitalspend, achieved through tighter controlof vendor execution and adherence toproject schedule

2-5% increase in operating margin, due tothe increased availability of plantsoperating at design output during initialyears of operation


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Key challenges for offshorewind mega-projects

2

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Along with the significant potential for producing cleanelectricity with offshore wind mega-projects comes thefact that some of the challenges are also magnified bytheir scale; overcoming these challenges will be key indelivering the imperative of cost reductions and betterproject economics. The scale, complexity and investmentrequired for mega-projects mean that current supplychains, business models, processes and practices willhave to change. There needs to be a line of sight towards

lower development and operating costs and greaterrevenues or these projects will not be built. This sectionhighlights what Accenture believes are the four biggesthurdles that the industry will have to surmount as mega-projects begin to emerge.


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The global wind turbine market iscurrently oversupplied, as the generaleconomic downturn, limited availabilityof capital, and high and volatile pricesfor raw materials have resulted infrozen projects and generally weakerdemand. With incremental demandin Europe and the Americas beingoutpaced by that in China and otherAsian economies, manufacturing israpidly being transferred eastward,also hurting the supply side throughmarket share losses for the industryin the Western economies.

While these short-term marketconditions are driving a buyers market

and re-composition of turbine supply,the long-term growth fundamentalsremain: the global turbine supply chainwill need to transform and ramp updrastically to support the developmentof 40 GW of offshore wind powercapacity licensed by the UK CrownEstate33 , alongside similar levels ofexpected growth in other regionsincluding the United States, China and

continental Europe. Yet, ensuring cost-efficient growth and guaranteeing highquality under such demand levels couldpose serious challenges.

The turbine supply chain is therefore apotential bottleneck. In its current state,the supply chains serving the nascentoffshore wind industry possess a seriesof characteristics that need to evolvefor mega-projects to become viable andattractive investments. Many of thesecharacteristics are a direct consequenceof the absence of a strong demand-sidepull that incentivises R&D spend, costreductions, and greater competition,cooperation, integration andspecialisation. So, if the higher demanddoes begin to materialise, is there realpotential for offshore wind turbinesupply to transform and deliver savings?

Part of the answer lies in that muchof the existing offshore turbinesupply chain is set up to cater for thedevelopment of the smaller-scale,land-based wind farmswhich todaymake up the bulk of wind turbinedemand. As a consequence, offshorewind projects have to a large extentbeen employing technologies, processesand business models adapted fromthe onshore industry, rather thandesigned for the very different offshoremarine construction and operationsenvironment. The turbine supply chainneeds to transform and, indeed, will betransformed, by the order of magnitudechanges in turbine demand that mega-projects will bring about.

Overview of the turbinesupply chainThe names of the main elements of anoffshore turbine are not dissimilar from

those of its land-based counterpartsalthough, for the reasons previouslydiscussed, these are quite likely toevolve in time. Differences betweenthe two types have and will continueto develop over the years with respectto turbine size, blade materials andperformance, drive train and, especiallywith the expected emergence of double-digit megawatt units, towers andsub-structures. Also, the development ofprojects increasingly further from shoremeans that transmission technologywill very likely shift from high voltagealternate current (HVAC) to high voltagedirect current (HVDC) due to the lowerlosses over large distances from thelatter technology.

The degree of vertical integrationin the offshore wind turbine marketis quite limited and the businessmodels are varied. Most of theleading turbine manufacturers focuson the manufacture of turbines,

blades and towers, outsourcing theremaining components. A few ofthe market participants are presentin manufacturing generators andcontrollers, and just a couple producedrive trains as well. This panorama islikely to change with the emergenceof mega-projects, which could promptmore integration across the value chainand possibly further down into thesubstructures (e.g., with a move towardsfloating substructures) and grid-connection segments.

2.1Turbine supply chain

If all UK-planned offshorewind is to be built withinthe period of 2015 to2022, the average rateof construction wouldbe one turbine per daysignificantly greater thanthe industrys currentproduction capacity.


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Figure 8. Vertical integration of leading turbine manufacturers.

Vestas

Gamesa

Turbines Rotor bladesDrive train(gearboxes/direct)

Generators Controllers Towers SubstructuresGridconnection*

GE Energy

Enercon

Siemens Wind

Suzlon

Nordex

Direct drive drive-trains

Presence in specific stage of turbine supply chain

*Grid connection: Infrastructure service to provide physical connection between wind farm and grid.

Scope for better economicsfrom the turbine supplychainAchieving significant cost reductionsand revenue improvements or havinga clear line of sight to how these willbe achieved in coming years is vital to

the entire offshore wind industry. Withthe business cases for mega-projectscurrently so dependent on governmentsupport, the promise of better projecteconomics is the crucial component toattract investments at the scale requiredto develop them.

The offshore turbine, its componentsand structure represent about 50 to80 percent of offshore wind costs 34 and a holistic approach must be takento significantly reduce costs. Primary

drivers for cost reduction and greaterefficiency include bespoke offshoredesign, optimisation of manufacturingand improved logistics.

In addition to reducing the costs ofan installed turbine, better economicsin turbine operations will also be key.Scale, better design and new componenttechnologies will increase energy

capture. Reliability and predictivemaintenance will be essential inmanaging offshore operation andmaintenance costsa majority of alloffshore maintenance is unscheduledcorrective maintenance. Performance,reliability and predictive maintenance allstart with turbine design.

Turbine components andtechnologyMost of the technology currently beingused in existing offshore wind farmsis technology that has been adaptedfrom the onshore industry, rather thantechnology designed specifically foroffshore applications.

This technology is being increasinglychallenged as wind farm projectstend to go further offshore where

there are increased water depths andwind speeds. To maximize energycapture, turbine sizes are gettingever larger, 6 MW models are alreadycommercially available. But bigger isnot always better: greater size cancreate reliability and logistics issues,some of which can be partially offsetby reducing the size and weight ofsome componentsswapping gearboxesfor direct drive units is one such

example. On the other hand, some ofthe usual constraints of the onshorewind industry such as noise and visualimpact can become less important inthe offshore environment, providingopportunities for technology innovation.

There is a general consensus thatsignificant technology development is

still needed to shift project economicsto attract investors. However, thetechnology departments of the leadingturbine manufacturers still focuspredominantly on onshore technology,as onshore wind still represents thelions share of the turbine market. Thistechnology bottleneck is one of the keyobstacles that needs to be overcome,and we believe will be, with theemergence of mega-projects.

Our research has found that bettereconomics for project developers andoperators may be delivered throughtechnology improvements acrossthree main areas: reducing capitalcosts through production streamliningof components, lower operatingcosts through increased reliabilityand predictive maintenance, and byincreasing revenues through greaterenergy capture.



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Figure 9 illustrates the turbinecomponents where technologicaldevelopments may improve projecteconomics through lower costs orimproved revenues.

LogisticsInstalling an offshore wind farmrequires the transport and handling ofmultiple components that are typicallyvery large, very heavy, but also veryfragile. As is the case regarding thetechnologies of the turbines themselves,the logistics of offshore wind turbineshave been so far largely borrowed fromthe onshore wind industry, but alsofrom oil and gas offshore operations,usually involving high costs and timeconstraints due to the limited supply ofspecialised vehicles and vessels. Newtechnologies, processes and coastal

locations that allow for the completeproduction of floating turbines at ornear ports, or the efficient assembly ofturbines at sea could deliver dramaticcost and time reductions.

Cooperation and contractingThe development of the turbinesupply chain remains uncoordinated,with unbalanced risk sharing andfragmented, nonstandardisedcontracting practices prevailing among

key value chain actors includingdevelopers, suppliers and government.

On the one hand, developers generallyagree that without pre-orders, thesupply chain will not develop andproduction capacity is unlikely toexpand. But pre-orders are costly andrisky, meaning developers may choose towait until an adequate and sustainableturbine supply chain is in place before

the final investment decision. Thisapproach would help reduce therisks associated with pre-orders ofcomponents that have substantial leadtimes. Indeed, lead times for turbinesremain one of the longest in offshorewind procurement, often taking twoyears or more. Suppliers on the otherhand, promote a different approach and

look for joint commitments and gradual/parallel development of consent andengineering, manufacturing capacity,financial investment decision andordering. The contrasting approachesto project development and thecontractual practices currently in placecreate a supply crunch at the time ofthe final investment decision, whencomponents are effectively ordered.Inevitably, the response from the supplychain is lagged, resulting in shortage

and delays.The industry therefore finds itself in asituation of stalemate, with the supplyand demand sides of the supply chaineach expecting its counterpart toundertake higher risk, investment andprovide greater assurance in order tomove the industry forward. Breaking thisgridlock, and crucially, achieving greaterintegration and alignment of the supply-and demand-side business objectiveswill likely require greater communication

and collaboration, innovative risk-sharing and standardisation incontracting approaches, and exploringand developing opportunitiesfor supply chain rationalisation.Government and business servicesfirms should investigate new waysto further facilitate and broker thisenhanced level of cooperation (seenext section on Regulation).


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Figure 9. Wind turbine components and potential scope for cost and revenue improvement.

Improved structural design

Blade technology

Improved aerodynamic design

Standardisation of gearboxes

Second-generation substructures

Greater use of HVDC connectivity

Lower-speed generators

Direct/hybrid drive transmission

Lower capital costs throughcomponent productionstreamlining

Lower operational costs throughincreased reliability and predictivemaintenance

Greater revenues through higherwind energy capture



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Case study

ForewindCompany overviewForewind is an incorporated jointventure made up of four leadinginternational energy companies (SSE,RWE, Statoil and Statkraft). In January2010, Forewind was awarded thedevelopment rights for Dogger Bank,which is the largest planned offshorewind farm in the world.

In accordance with the developmentcontract, Forewind is committed tocarry out a work programme to preparethe projects for consent. Each of thepartners is scheduled to invest some40 million in implementing the workprogramme. Forewind is responsible for:

Developing projects.

Obtaining agreement for leases.

Achieving all key consents.

Due to the very large size of the DoggerBank area, any development has to bemade in phases, with several projectscomprising the project tranches ofeach phase. The objective is to achieveconsent for the agreed target of 9G Wof installed capacity by 2020, althoughthe zone has a total capacity of almost13 GW, or around 10 percent of the UKsprojected electricity requirements.

The investment decision will betaken by late 2014, after which thewind farms would be developed andmaintained by various constellations

of the parent companies and anyadditional future partners.

Business challengesConstruction cost reductionsand better risk sharing: keycomponents to make theeconomics workTo develop and install the 9 GWof Forewinds planned capacity,investments in the region of 40

billion will be required. According toBjrn Ivar Bergemo, head of businessmanagement at Forewind, proving that

the economics work will be a crucial

element in attracting investments ofthat magnitude. If Forewind can manageto keep costs down and demonstrate asound business case, the consortium willalso be an attractive investment.

Keeping costs down is one of the keychallenges faced by the offshore windindustry today, with the turbine supplychain and vessel contracting standingout as the main cost componentsof the capital expenditure phase. Toremain competitive for future funding,the industry must prove it has line ofsight to achieving profitability withoutsupport from the taxpayer. This poses akey question: How long will governmentsupport be realistically maintained if thecost of installing offshore turbines failsto reduce below the currently observedlevels of 2 million to 3 million/MW?

Today, developers carry the majorityof the risk in the early phase ofdevelopment. Other key stakeholders

in the sector, including electricitygrid operators and the government,should take on a greater share ofthe construction risk to increase theattractiveness of the industry to moreinvestors and developers. For this shiftin risk-sharing to materialise, however,the industry must start to demonstratea trend of improving its cost efficiency.

Reducing the costs of securingconnectivity to the power grid

One of the most crucial issues forcompanies in the early developmentstage relates to the investmentrequired to establish the necessarygrid reinforcements that will secureadequate grid connection capacity forthe planned maximum output of theoffshore wind project.

At present, the government does notrequire grid reinforcements. Rather,reinforcements and grid connectiontake place through bilateral agreementsbetween National Grid and developerssuch as Forewind. The developer must

sign cancellation securities that are

updated bi-annually. These cancellationsecurities represent large sums that arereleased and lost to the grid operatorif the developer fails to fulfil itsengagements. These sums increase asthe date of commissioning approachesand, in the case of gigawatt-scaleprojects, billions of pounds have tobe secured by the developer to ensuregrid connectivity. These cancellationsecurities represent a large risk fordevelopers, especially since these are

important sums that need to be put onthe table prior to investment decision.

Governmental bodies need to bemore aligned to reduce risk in gridconnection process. To make theindustry sustainable, it is requiredto shift away from the currentmodel where developers carrythe entirety of the risk from gridconnection cancellation securities.

Improving the health, safety and

environment (HSE) performanceHealth and safety risks in the offshorewind industry have proven to bevery real and its health, safety andenvironmental (HSE) performance needsto improve. The industry in generalis getting increasingly more focusedon the health and safety issues, andForewind aims at being an industryleader in this field.

Apart from surveys and metocean

mast installation, early developers havevery limited experience of the complexenvironment that is marine offshoreoperations. Substantial health andsafety risks exist in the installationas well as in the operation andmaintenance phases of a project, withthe most severe risks stemming fromaccess to and egress from the turbines.Both vessels and helicopters are partof construction and maintenanceoperations. The risk profile can besignificantly reduced by minimising thenumber of required onsite visits throughhigher reliability of plant and kit.


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Forewind will include several optionsfor operation and maintenance strategyin the consent applications, leavingthe final decision to the future siteoperator. Forewind believes thatsafe operations and maintenanceare obtained by jointly managingtechnology, mindsets and people.

Environmental risks and issues arewell covered by work performed forconsent applications. These studies alsorepresent an important cost element.The Environmental Impact Assessment isone of the key deliveries of the consentapplication and includes data gatheringby vessel and airplane and thoroughanalysis. The environmental statementcovers all environmental issues aswell meaning that, for the future leadoperator, health and safety will berelatively more important focus areasthan environment.

According to Forewinds health andsafety manager, the offshore windindustry has much to learn from theoil and gas industry in regard to healthand safety. Compared to the oil and gasindustry there are, for example, obviousgaps in offshore wind regulation,perhaps due to the nascent nature ofthe offshore wind industry. Regulationsare fundamental in establishing a

cross-industry standard that serves toadequately mitigate health and safetyrisks. The offshore wind industry shouldleverage on the developed principlesfrom oil and gas. For example, in theNorth Sea, knowledge sharing aroundleading practices and incidents withinthe industry has been very successfulthrough the years and remains so today.

Risks are lower in the wind industry inthe sense that the type of machinery,plants and components used to buildand operate wind farms has technicalcharacteristics that are unlikely to causemajor catastrophes, such as spills orlarge-scale explosions. On the otherhand, the risks linked to installation,operation and maintenance at largeheights and/or in open waters are verysimilar and in some aspects greater(e.g., presence of fast-moving turbineblades for helicopter operations)than in the oil and gas industry.Knowledge sharing and transfer

from the offshore energy industrywould be very beneficial in improvinghealth and safety performancein the offshore wind industry.

Developing a sustainable supplychainIf the UKI planned offshore windcapacity is to be built between 2015and 2022 a construction rate ofone turbine per day will be required.Today, the offshore wind turbinesupply chain is far from being ableto meet such demand levels.

Supply chain capacity must increasewithout the requirement of pre-orders.Carrying the full risk of securingsufficient component capacity andpre-orders prior to final investmentdecision puts a significant amount ofpressure on developers. To benefit fromthe potential growth opportunitiesin this market, investment fromsuppliers will be a key element tobuilding a sustainable supply chain.

Forewind believes that consentapplication could be made moreflexible through the approval ofvarious concepts that the leadoperator could evaluate and selectfrom, thereby increasing the scope ofoptions with respect to technologyand design. This would serve tostimulate competition, innovation andcost reduction by suppliers. However,such an approach would also havenegative implications for the leadtimes of component manufactureas well as supply chain capacities.

Securing the right talentIn the initial development phase,competition for human resourceswith the oil and gas industry has beenlimited, and actually less than whatwas initially expected. Rather, the moreimportant resource issues have beenrelated to attracting the right talentto the industry as a whole, and having

sufficient time to train staff.

Scalability as a key determinant oftechnology selectionOffshore wind turbine technology isevolving rapidly and it is anticipatedthat turbines with capacities up to10 MW may be available within thetimescales of the first Forewind projectson the Dogger Bank.

Forewind believes that the scalability

of any given technology will becrucial and small players will beable to grow quickly, providedthey have the right technologywith the adequate scalability.

Key lessons learnedA green light for any gigawatt-scaleproject will be a game changer forthe offshore wind industry. Projectswith planned capacities in excessof 1 GW such as Forewind are of acompletely different nature relativeto the much smaller existing offshore

wind projects. Forewind expects thatmature manufacturers will step upand secure a sustainable supply chainor risk seeing investors and operatorswalk away. The current issues regardingturbine manufacture lead times are thusexpected to be solved by key suppliers.

Technology choice is not as much of anissue as there are only a few supplierswho could support a gigawatt-scaleproject. However, new technologies willget folded in, probably through mergersand acquisitions (M&A).

Health and safety represent substantialissues for the industry and knowledgetransfer from oil and gas and regulationsare required, but environmentalissues are of less concern as they arehandled thoroughly within the consentapplication process.


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A considerable share of the vesselscontracted for offshore substructures andturbine installation have been adaptedfrom the oil and gas industry. Vessels areused across all phases of the offshore

campaign, but there is particularlyhigh competition for those necessaryduring installation, including heavylift vessels, pipe/cable-laying vesselsand transportation vessels. There areapproximately 675 vessels designed forthe oil and gas industry, many of whichare directly transferable to offshore wind.However, as oil and gas projects rebuildmomentum and decommissioning in theNorth Sea continues, the offshore windindustry faces strong competition andis experiencing a shortage of vessels.Additionally, the requirements foroffshore wind vessels have evolved tobecome more stringent and industry-specific to address the unique challengesposed by complicated access and egress.Accordingly, the supply shortage andchanging requirements have led to thecommissioning of dedicated installationvessels. More than 20 specialisedinstallation vessels are projected to bedeployed to the offshore wind marketby 2013, which will likely put downward

pressure on day rates and acceleratethe retirement of less-qualified vessels.However, developers currently facesecurity of supply risks that drive the needfor further investment.

Developers and vessel manufacturersacknowledge the need for vessels thatare optimised for offshore wind farms;however, such high-spec vessels arecomplex and difficult to build, taking

approximately two years to complete andrequiring a significant investment, upwardof 100 million. Many developers expectmanufacturers to build capacity withoutconfirmed contracts; however, investors

are reluctant to commit capital withouta guarantee of potential profits. Thisstalemate between developers and vesselsuppliers, which is akin to the situationwith turbine manufacturers discussed inSection 2.1, causes delays in new vesselavailability, which ultimately affectsproject performance and profitability.Therefore, many developers are assumingthe risk up front and confirming contractsbefore final investment decision andin the midst of funding challenges. Ifdevelopers are unwilling to assume thisrisk, particularly when dealing with mega-projects, then governmental supportmight be necessary to avert cancellationof the project. The European Wind EnergyAssociation (EWEA) is projecting that 1.7billion investment in ships will be neededto provide for the predicted growthof offshore wind farms35 . Althoughspecialised ships are being commissioned,it is unclear how many will actuallymaterialise and whether or not they willsatisfy market demand.

Funding challenges also present HSEissues related to vessel contracting. Whenearly developers do not have enoughfunding to invest in new or high-qualityvessels to conduct offshore surveys, andinstall metocean masts and wind buoys,health and safety issues may become moreprevalent. Many offshore wind developerscannot afford the high day rates of top-end oil and gas vessels and likely cannot

afford the expensive mobilisations to bringthese vessels in from other regions whenfaced with supply constraints. Offshoreconstruction day rates for high-endvessels can exceed 335,000/day and

inter-region mobilisations are often inexcess of 13 million/mobilisation. Whilethese prices are within budget for largeoil and gas projects, they are typicallyexcessive for the smaller offshore windproject budgets. Therefore, offshore windprojects are often left with two optionsutilize the few specifically designedoffshore wind vessels available on themarket or convert the older oil and gasvessels that are no longer active. Bothoptions involve supply constraints in thetight market. Additionally, using older,cheaper vessels may increase HSE risksand, to some extent, environmental risks.Ultimately, for vessels, as in many othersegments of the offshore wind industry,the uncertainty and lack of definitivefunding is causing a supply constraint thatmay result in delayed project schedules.A common understanding of the futureof the industry and its profitability isnecessary for the vessel suppliers to makea dedicated commitment to the offshorewind market. Figure 10 presents some of

the main companies supplying vessels tothe offshore wind industry.

2.2 Vessel contracting


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Case Study

SeaEnergy PLCCompany overviewSeaEnergy PLC is a public limitedcompany, and its subsidiaries form anenergy services group, headquartered inAberdeen, Scotland. It has a heritage ofcombining oil and gas and renewables,and has operated as project developerand service provider in both sectors.The group is currently establishingan offshore energy services business,which aims to provide access and otherservices to the expanding offshore windindustry as well as to other offshoreenergy clients, and also holds a numberof investments in oil and gas.

SeaEnergy will provide operationsand maintenance services to offshorewind farms, and the vessels fromwhich to provide these services.Its state-of-the-art vessels andother assets for offshore wind farmcommissioning, operations andmaintenance will help developers reducecosts and increase safety through:

Integration of proven leadingtechnologies.

Co-location of access,accommodation and work functions.

Reducing fleet numbers by usingmultipurpose vessels.

Purpose design and build for supportthroughout the wind farm life cycle.

24/7 long-term deployment in thefield.

Minimising cycle time for safeefficient working at multiple sites.

Accenture interviewed John Aldersey-Williams (CEO) and Mike Comerford(technical director) from SeaEnergy PLCaround the challenges and opportunitiesfacing the offshore wind industry in theUK and elsewhere.

Business challengesOffshore wind should embracethe lessons learned in otheroffshore technologies todevelop its own solutionsThe offshore wind industry is currentlycharacterised by a series of traits thatneed to evolve for it to be successful atscale. These traits include appropriatebuild/install strategies, floating turbines,reducing cycle time, use of purpose-built assets, supply chain involvement

and cultural issues.

Many of the existing practices andtechnologies being applied to offshorewind projects today are basicallyonshore wind solutions that have beenmarinised. SeaEnergy recognises thatnew and bespoke turbine technologies,logistics and supply chains andoperational attitudes are required forthe large-scale deployment of offshorewind to be successful.

Alternative build/installstrategieslessons from oiland gasTwo options for turbine manufactureand construction represent the ends of aspectrum of strategic possibilities:

Assemble turbines close to shoreand ship fully assembled units: Theexperience in the oil and gas industrysuggests this is the preferred option,given the complexity of constructionplanning and work in the marineenvironment, especially when multipleunits are involved, as expensiveand higher-risk offshore hours areminimised. Significant development inports and bespoke vessels would berequired to support this more efficientoffshore operation. In addition, somedevelopment of turbine designs willbe required to make them tolerant ofthe requirements of the integratedinstallation approach.

Ship wind turbine sub-assemblies and

assemble offshore: This option is lessefficient, as it involves more risky andexpensive offshore hours, but is how theindustry is currently operating in mostcases. Again, significant development inports would be required, but this maybe dispersed among a number of portswith each potentially specialising inlimited aspects of the supply chain (e.g.,cables, blades, towers, etc.). In this case,fewer bespoke vessels might be required,leading to a lower risk to vessel owners

as vessels can be multipurpose and fordevelopers as alternative vessels areavailable if required.

The selection of build strategy willbe determined by the economicsof alternatives, together with anassessment of the risks implicit in eachpossible approach.

Floating turbinesFloating turbines are likely to be animportant aspect of the longer-termway forward. Installation requiresfewer specialist vessels and less-dedicated equipment; consequently,logistics are simpler and the risksassociated with these elementsof project implementation maybe reduced. Development of suchtechnology would facilitate worldwiderollout of offshore wind as waterdepth is no longer a limitation.

Reducing cycle time lessons

from lean manufactureIndependently of the constructionstrategy, turbines need to bedesigned for offshore construction.The dispersed multiunit nature ofwind farms means that minimisingcycle time for installation andcommissioning and operations andmaintenance (O&M) is vital.


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An efficient manufacturer such as aJapanese automaker would examine themanufacturing process and minimisethe number of assembly steps. Forthis to happen in wind farms, anend-to-end design and constructionprocess needs to be considered,bringing together manufacture,logistics, construction and operations

and maintenance considerationsinto the design. The introductionof automated process for turbineand foundation assembly, and thestandardisation of components wouldalso enhance buildability and quality,reduce cost, errors and cycle time.

Right now, every supplier has their owndesign and there are few offshore-specific solutions. However, forinvestments in automation to happen,manufacturers require line of sight oflong-term turbine demand.

Cable installation importance ofpurpose-built vesselsAnother issue is that there is frequentlycable damage during installation,often because the cable installationvessels are not purpose designed.When transatlantic cables were beingdeployed, purpose-built cable ships wereused and cable was manufactured andloaded directly onto these ships in anintegrated way. If a similar approachwas adopted for offshore wind,integrating manufacture, loading andinstallation of cables with purpose-builtequipment, lower-cost and higher-reliability installations would result.

Supply chain involvementAll of the previously mentionedimprovements require collaboration withand within the supply chain. The existingindustry supply chain is not ideally

configured for large offshore projects,and developing a well-functioningsupply chain will require goodinternational coordination. Importantmanufacturing facilities are alreadyin place in Germany and Denmark, sothere is potential to scale up capacityin locations there, where supply chainand shipping capability already exist,although the scale of the opportunitymeans that there is also potential fornew, purpose-built and optimised

manufacturing capacity to be built in

the UK or elsewhere in Europe. In turn,this requires relationships to developand improve, as well as maturity andincentives for quality across the supplychain. In particular, there is a need tobuild trust and longer-term commitmentat both ends of the supply chain.

Utilities and developers need to shift

focus from the cost/MW installed tothe cost/MWh generated. Contractingpractices will need to change.Longer-term relationships need to beestablished: some continental utilitieshave a practice to sacrifice short-termmargins for longer-term returns, theindustry could certainly do more of this.

A significant challenge for the offshorewind industry will be how to transferthe skills and capabilities developedin the oil and gas sector into therenewables sector. Companies suchas SeaEnergy, with a heritage in bothoil and gas and renewables, are wellpositioned to facilitate this transfer.

Cultural barriersIndustry culture is also a potentialbarrier, as evidenced by resistance fromutilities and wind companies to embracethe offshore experience of oil and gascompanies. Barriers need to be brokento build trust between manufacturers,

developers and oil and gas companies.

Using purpose-designedvessels to improve projectperformanceIndustry sources suggest thatthe chartering of installationvessels typically comprises about2 percent of project capitalexpenditure. But the influence ofthe installation vessel performanceon project outcomes is huge.

The use of purpose-designed vesselscan deliver very significant scheduleadvantages, thereby more thanoffsetting its additional cost. Witha purpose-designed vessel, initialCAPEX (capital expenditures) andday rates may be higher, but thelikelihood of overruns will be lowerand the project returns both higherand less subject to schedule risk.

But the appetite for building highlyspecialised vessels critically dependson the availability of finance. This canlead vessel operators to dilute theirideal bespoke design and/or incorporatefeatures (which broaden the vesselscapability but increase its cost andrequired day rate) in order to be able tosecure finance.

To be able to move away from thismodel, developers need to better applythe difference between price and valueand to encourage the development of aclear and secure pipeline of future work.There is a big difference between theprice to deliver a projectdetermined bythe cost of project equipment and/or thetotal cost per installed MW of capacity,and the value of that project, measuredin terms of /MWh of power generatedover the project life cycle. At present,the emphasis is frequently on minimisingthe cost of individual project elements(such as installation vessel day rates),when a more holistic view focusedon maximising the project life-cyclevalue would be better. It can be veryexpensive doing things the cheap way.

Improving HSEHigh safety performance is achieved bybeing in control, just like good business

is about being in control. This requiresplanning, resourcing, monitoring andexecuting according to plan. At themoment, safety in offshore wind issimilar to how it was in the oil and gasindustry in the 1970swith an unclearand unintegrated safety regime andinadequate safety behaviours. HSE hasto be the responsibility of the operatorwho formally becomes the duty holder,and has full responsibility for health andsafety management and outcomes.

Another stumbling block is lack ofclarity: it is not always clear who isregulating offshore wind. The industryas a whole needs to move from a whatcan we get away with mode to a whatshould we be doing mode. This is partlydue to the lack of regulatory clarity.An integrated and clearly-defined HSEregime for offshore wind would begood for business. The North Sea oiland gas industry helped to develop andembraced the offshore installations

(Safety Case) regulations. Safety Case


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regulations essentially boil down toone simple regulation: avoid majoraccidents (such as hydrocarbon spillsor fatalities) or face prosecution andalmost inevitable legal penalties. Peopleunderstand that they are on the hook forthe risks and set out to manage them.In offshore wind, there is really no needfor a complete new set of regulations,

just an application of safety caseregulations for offshore wind. Currently,construction design management onlyapplies to construction phase. SafetyCase should be applicable to the entirewind farm life span.

Regulations and incentivesThe fact that offshore wind is beingdeveloped suggests that the regulatoryand incentive framework is working,but it could be improved. For example,ROCs under the Renewables Obligationare noncontractual credits, which makesfinancing difficult. This is especially truefor companies with small balance sheets.Feed-in-tariffs would make financingmuch easier, as project revenues willbe viewed by financiers as bankable.

The consenting process for offshorewind farms remains long and torturousand should be streamlined. Therecent reorganisation of the marine

management agencies has not so farhelped, as the structural changes havenot been matched with capacity, makingthem a slow regulatory body.

Intermittency managementThe market should decide which choiceis best for backing up the intermittencyof offshore wind output. The grid andmarket players will have to learn toaccommodate intermittency.

Key lessons learnedSeaEnergy believes the two mainmessages for the offshore wind industryare:

1. The industry needs to think about theright problems at the right scale. Theseinclude developing an adequate supply

chain, changing contracting practices,embracing holistic HSE practice, andworking with all actors across thevalue chain to produce better offshore-specific solutions.

2. The industry can learn from theexperience of those industries that havehad to deal with similar problems inthe past. Candidate areas for skills andcapability transfer include substructuretechnology, venturing, contracting andrisk sharing, and HSE management.


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The open ocean is a challengingenvironment in which to gainexperience. Successful operationoffshore is highly dependent on theability to execute projects on time, onbudget and safely. However, the safeexecution of projects is an area thathas been a concern for the industryas it has expanded. With rapid growthcomes the need for fast increases inexperience and expertise. Yet acquiringexperience requires time, somethingthat, considering the planned ramp-upin capacity build, the offshore windindustry does not have too much of.Fortunately, many of the skills andsafety practices necessary to operateoffshore were developed through along, arduous and costly process bythe oil and gas industry over the last40 plus years. Several years of lost-time incidents and heavy project cost

overruns are experiences the offshorewind industry should do its best toavoid. The fast-tracked timeline to have18 GW of offshore wind generationby 202036 does not grant developersmuch time to become a mature, safeand stable industry. Growing theindustry from a small, government-subsidised effort into a large-scale,reliable source of renewable energywill require quick thinking and theadoption and transposition of valuablelessons learned from those thathave been there before: the pioneersof offshore energyoil and gas.

In recent years, the extensive projectdelays, cost overruns and higher HSEincident rates than in equivalent oiland gas fields quite clearly suggest thatonshore wind experience is not directlytransferrable offshore. The challengespresented by the North Seas difficultenvironment present a threat to theexecution of on-time, on-budget andincident-free projects. While leadingpractice project management andincreased experience will help with costand schedule, developing a safe workenvironment is more difficult. Accentureresearch and interviews with industryexecutives suggests that the offshorewind industry has a performance gapwhen it comes to HSE-related incidentsand fatalities.37

Comparing the track records of offshorewind with offshore oil and gas is not

a fair contest. The modern-day oil andgas industry has millions of man-hours of experience, and thousands oflessons learned supporting its safetyculture. The offshore wind industryhas started to pay more attention toHSE as it hopes to grow into a healthyand mature industry. RenewableUKsLessons Learned Database, launchedin 200638 , is an example of how theindustry has matured significantly overthe past years and has helped to foster acollaborative work environment amongoffshore wind development companies.In addition, industry-specific HSE

conferences focused on collaborationprovide another example of how theoffshore wind industry is looking to takesuccessful initiatives from oil and gasand adapt them to close the experienceand performance gap.

RenewableUK lists constructionand offshore as two of the focusareas for improvement in HSE for therenewable energy industry39 notingthat a significant proportion of theincidents recorded occurred duringthe construction phase of wind farmdevelopments and that the experienceof incidents offshore highlights thelogistical complexity of remedial actionsavailable to offshore wind industry inthat environment. However, furthercompounding the issue of inherent HSErisks in the industry is the significantcapacity and skills shortage from

offshore field development suppliers. Asoffshore wind projects become largerin size and more technically complex,the number of dedicated offshore windsuppliers capable of executing the workis becoming smaller.

Fortunately for the offshore windindustry and for many oilfield services(OFS) providers currently operating ina declining North Sea market, there issignificant overlap between offshoreoperations in oil and gas and in wind.While the source of energy generationmay not be the same, there exist many

2.3Development and HSE:Leveraging the experience ofoffshore oil and gas


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similarities in the types of servicesrequired for project execution. Offshorewind projects will require servicecapabilities from third-party suppliersranging from front-end engineeringdesign through to installation,connection and commissioning. ManyOFS providers have recognised thispotential and have begun moving into

offshore wind through merger andacquisition (M&A) activity, building theirown internal renewables division, or acombination of the two.

Although there are suppliers specificallygeared to handle the needs of theoffshore wind industry, many of theseniche contractors lack the experienceor capacity to handle the growth insize and complexity of the Round 3projects. These projects are forecastto include the installation of some 32GW of new generation across ninedifferent zones40 compared to thecombined 8.2 GW in Round 1 and Round2. Additionally, Round 3 projects arelocated in deeper and more complexenvironments, requiring a greater degreeof technical expertise. It is this pushfurther offshore into deeper watersand harsher sea conditions that hasled project developers to look to OFSproviders for their technical capabilityand previous project experience.

Additionally, as projects grow in sizeand complexity, so do their costs.Round 3 projects are forecast to costmore than 1 billion, with some zonestargeted to exceed 10 billion41. Inshort, the significance of Round 3 ishigh: Round 3 offshore wind energy istargeted to deliver 25 percent of theUKs total energy needs by 202042 .The shift towards increased spend onlarger projects in more challengingenvironments, combined with

decreasing North Sea assets, has drawnthe attention of various sides of the oiland gas industry. Traditional suppliers,operators and entire cities haverecognised the opportunity to capitaliseon their own offshore experience andmove into this new, rapidly growingand potentially lucrative market.

Oil and gas experience may representthe key partner required to takeoffshore wind to the next level ofself-sufficient operations. In a 2011survey conducted by Aberdeens RobertGordon University and commissioned

by Accenture43 , 36 companies,organisations and institutions involvedin either offshore wind or offshore oiland gas operations were surveyed tobetter understand the potential fortransferability of oil and gas experiencesinto offshore wind. The results of thissurvey show a significant industry trendof adopting offshore wind as a strong

future revenue source. More than three-quarters of respondents said that oiland gas experience was transferrableto offshore wind. In addition, whenquestioned about project phases,the design, construction, operationand decommissioning phases all hadmore than 60 percent of respondentsindicating a direct transferability ofskills between the two industries.Offshore wind has the potential tosignificantly benefit from the declining

asset base occurring in the North Sea,as the shift towards more technicallychallenging projects is requiring a stepchange in skills.

Players taking note of the growingoffshore wind market are not confinedto OFS providers. The city of Aberdeenhas embraced the transformation ofits offshore industry from hydrocarbonexploration to wind generation, andhas taken steps to ensure it is at theforefront of development. Since 2001,

the Aberdeen Renewable Energy Group(AREG) has been active in encouragingthe development of renewable energyprojects. AREG is an incorporatedcompany of more than 160 members,and has been working for more than10 years to ensure Aberdeen playsa major role in its shift from beinga hydrocarbon energy centre to arenewable energy centre.

AREG and its joint venture partners,Technip and Vattenfall, have beenworking towards the development of theEuropean Offshore Wind DeploymentCentre (EOWDC), to be located inAberdeen Bay. Using its existing positionas a leader in marine engineering,Aberdeen hopes the EOWDC willproduce substantial benefits foroffshore wind development leadingto cost reduction and risk mitigationthrough reliability and capabilitytesting. Additionally, OFS providers havebegun to penetrate the market not onlythrough direct translation of currentcapabilities, but also through innovative

partnerships with project developers.Both Technip and Subsea 7 have signedMemoranda of Understanding (MOU)with major utilities in Europe (Technipwith the Spanish utility Iberdrola,44 andSubsea 7 with Scottish and SouthernEnergy [SSE]45 ).

These partnerships are strategic efforts

to bring together skills from the twomain industries that compose offshorewindi.e., onshore wind and offshoreoil and gas. By utilising each partnersrespective skills, these alliances seek todevelop offshore wind projects in themost cost-effective and safe manner.46 If all parties involved get their way,the experience and knowledge learnedfrom more than 40 years of energyproduction in the North Sea will playa strong role in shaping the future foroffshore wind.


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Case Study

Offshore wind: A perspective fromoilfield services companies

Oilfield services, also known asengineering, procurement, construction,maintenance (EPCM), services orturnkey contracting, are a globalindustry that has several decades ofexperience of designing, constructingand operating in the difficult offshoremarine environment. It is no surpriseth

Documents

Accenture Changing Scale Offshore Wind