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MONEY MATTERS UNPREDICTABLE MARKET


On the other hand, the policy uncertainty is not conducive to long-term commitments. In the absence of a clear renewable energy strategy beyond 2020 leaves suppliers with an unpredictable market, i.e. something that we cannot calculate because it depends on politicians.


CONSTRUCTION RISK


However, the construction risk still remains higher than the industry would like it to be and there are several contributing factors. The industry is frequently associated with delays and cost overruns.


Over the last few years, there have been several announcements claiming turbine manufacturers intend to build factories in the UK in order to meet the demand of providing up to 50GW of offshore wind energy to the UK market. So far, none of those projects have been given the go-ahead.


Firstly, offshore construction operations are inherently risky and more costly. Secondly, the industry keeps pushing boundaries by building larger wind farms in deeper waters and in more complex metocean and seabed conditions at open sea locations.


Its growth also tends to be uneven as it is shaped by policy decisions, which hampers development at an organic pace.


UNIQUE CHALLENGE


The combination of these factors puts a unique challenge in front of the offshore wind developers and their suppliers. On one hand, the industry needs innovation that would address the new challenging conditions. It also needs new capacity to be able to meet the demand for various components.


It means that the actual construction will start in 2015 on several projects simultaneously. In the UK, many projects target to either capture the last ROCs or the first CfDs, which means commissioning in 2017-2018.


The UK has built 3.5GW of offshore wind generation capacity since 2000. From 2015 to 2020 it needs to build nearly twice as much. While the construction methods have vastly improved over the years, it is still a neck-breaking speed.


SECTOR EXPERIENCE The fabrication sector in the UK and Northern Europe is another vivid example. Most of the companies who invested in new facilities to produce foundations and substations for offshore wind farms in Europe and UK have experienced major financial troubles and some are going through a ‘dry’ season of no orders. The rest of the sector is waiting for Final Investment Decisions on major developments. Hull, Teesside, Tyneside and Methil areas could have already received and realised £700- £1,000m of capital investments to build new factories directly employing 5,000- 7,000 people.


FUTURE EXPECTATIONS


Currently the plan is to build about 6-7GW of new capacity by 2020 in the UK alone with 7-9GW in the rest of Northern Europe. The vast majority of this capacity has not even reached FIDs and hopefully we will see some of them later this year.


MAKING A DIFFERENCE This is when investment in a more industrialised supply chain could make a difference and since this country is the largest offshore wind market in the world, it makes sense that it has an adequate supply chain.


Several steps can be taken to reduce construction risks for offshore wind developers and ensure that developers are supported by a robust local supply chain.


• Co-ordinating the use and access to the supply chain including ports and water-front infrastructure by offshore wind developers rather than working on a ‘first come – first served’ basis.


• Establishing longer-term sustainable commercial relationships with suppliers based on continuous engagement rather than the one-off approach.


• Consistent management of performance levels rather than contractual disputes.


This would enable suppliers to find and secure investments, develop the required capacity and build up financial soundness. This would also spur more innovation by suppliers since they would be able to foresee the market for their products and it would work better than government grants.


This would lead to reduction in costs and construction risk that is sustainable in the long term, which would, in turn, help developers access wider pools of capital at a lesser cost.


Kirill Glukhovskoy Director


Aquind – an OGN (Offshore Group Newcastle) company


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www.windenergynetwork.co.uk


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