Scotland is generating enough renewable energy to meet 44% of the country’s annual electricity demand, according to Nicola Sturgeon, Scotland’s First Minister. "We are already seeing cost reductions in offshore wind, but the scale of growth...

By Katherine Steiner-Dicks

The UK is taking the lead for number of turbines connected to the grid at 219 (813.4MW) compared to Germany at 142 (528.9MW) and Belgium 47 (141MW) respectively. Of the total 1,483.3 MW connected in European waters in 2014, 50.7% were in the Atlantic Ocean and 49.3% were located in the North Sea (Source: EWEA).

The North Sea will continue to be the regional hotspot for offshore deployment in the short term, accounting for 84.8% of total capacity under construction.

However, these figures will grow considerably by the end of 2015 as the first consent order has been granted to what will be the world’s largest offshore wind farm, Dogger Bank Creyke Beck in the North Sea.

With a project price tag of between £6bn and £8bn, the project will comprise two wind farms (array of 400 turbines), each with an installed capacity of up to 1.2GW.

Forewind - The Dogger Bank consortium of developers - will soon select the project’s operators – one for each Creyke Beck project and from within the owner group – by summer 2015, a Forewind representative told Wind Energy Update.

Promise of Scotland’s “Windy Glen”

With Scotland possessing 25% of the total wind capacity of Europe, BVG Associates’ Alan Duncan says the UK has the highest level of offshore capacity installed globally.

“10GW installed by 2020 looks achievable and aspirations for 2030 of 22 - 25GW installed would keep the UK as the #1 offshore country globally. This profile offers us the chance for 1000's of jobs in Scotland.

“There are potentially a lot of jobs for us, but they are not going to be easy wins – we must look at what we can do to displace existing supply chains in Denmark and Germany,” says Duncan.
Duncan says that if the UK continues to be the largest installer of offshore wind, it has the potential to be the “driver on much of the innovation effort for the industry in terms of installation and cost reduction.”

“In essence, an opportunity for industry expertise to gravitate towards Scotland and by default an opportunity for Scotland to 'lead the world' in offshore wind,” he says.

Budget imbalance

Scottish Renewables’ Chief Executive Niall Stuart says with Neart na Gaoithe and the Beatrice development in the Moray Firth, there is over 1GW of offshore wind in Scottish waters with funding secured and moving towards a final investment decision.

However, Scotland’s offshore wind ambitions go far beyond this. “There remain almost 3GW of projects with planning permission, which will still be looking to secure contracts in the future. Together they could create over 10,000 jobs during construction and over £2bn in GVA. For them, the focus is now on the next auction, which is likely to start within the next 12 months.

“Yet we still have no indication of the size of the budget that will be available and competition for support could be even tighter. It is essential DECC gives some clarity on this as quickly as possible so that the projects, and the supply chain, can plan their future.”

Some offshore developers came up empty handed at the latest UK subsidy announcement, including Moray Offshore Renewables Limited (Morl), which has plans for three wind farms (Telford, Stevenson and MacColl) with up to 62 turbines on each site overlooking Caithness.

Dan Finch, managing director of Moray Offshore Renewables, has said that the business will continue developing MORL in anticipation of an early announcement of adequate Government support in future funding rounds in the summer of 2015.

Supply Chain Landscape

With close to 120 suppliers leaving the wind energy industry in the past two years (Source: FTI Intelligence), the May 7th elections in the United Kingdom could wreak havoc on future planning for the offshore wind sector. New 2030 policy targets for Levy Control Framework and RHI budgets resulting from the May elections will either make or break the case for future investment in the offshore wind sector, says Scottish Renewables.

“Energy is a political business,” says Feng Zhao, Denmark-based Director Head of Wind Energy and Economic and Financial Consulting at FTI Intelligence.

“Overall, in the past 18 months, the offshore wind market has not been stable due to policy changes that take away OEM and supplier confidence in setting up operations in new markets, even in the UK.

“Both parties have been disappointed by the reduction in GW targets, notably in Germany where suppliers and OEMs saw the 2020 target plummet from 10GW to 6.5GW and in the UK from 18GW to 11GW,” says Zhao.

This reduction has changed the playing field putting the very large and established OEMs at an advantage.

“As UK companies lack track record, but have the local content aspect, this opens up the potential 'win-win' situation of partnerships between new Scottish and established continental suppliers, says Duncan.

“The Scottish Government is actively trying to get foreign companies to bring their expertise to Scotland, but equally targeting opportunities for Scottish companies to diversify into offshore wind where a logistical or cost argument can be made,” he says.

Zhao says that Siemens and MHI Vestas Offshore Wind are well placed in the UK and are willing to stay there for the foreseeable future because they have factories there. But many OEMs from Europe are holding out for the May election results before they set up operations in the UK.

For Scotland and the greater UK, politicians must look to the future to see the even larger O&M revenue opportunity, Duncan suggests.

“Operations and maintenance will almost certainly be exclusively supplied from within Scotland for Scottish wind farms based on the logistical benefit. O&M is the biggest single spend area over the total DEVEX / CAPEX / OPEX lifetime spend of a wind farm (over 40%) and BVGA modelling concludes that 90% of the 'local content' benefit stays within Scotland,” says Duncan.

Call for stable politics

Jonathan Cole, ScottishPower Renewables’ Managing Director, considers, “There are a lot of reasons for us all to be optimistic about this sector, but we need a much more stable political environment in which to operate.”

Some of Cole’s prayers have been answered. In the last week of February it was announced that Neart na Gaoithe, a wind farm in the Firth of Forth, was awarded a 15 year contract to sell the power it will generate in the Department of Energy and Climate Change’s first ever green power auction.

Developer Mainstream Renewable Power (MRP) expects to make a final investment decision on the project in the first quarter of 2016, with the wind farm operational by 2020. It has plans to use Siemens 6MW turbines at the project.

It will be the first time that a UK offshore wind farm of this scale will be built using project finance alone.

Source: DECC/Carbon Brief

Offshore wind projects in the February 2015 DECC auction took up the lion’s share of capacity. According to Carbon Brief, offshore wind projects awarded contracts last year could have been £2.2bn cheaper, if they had been given the same support as offshore schemes contracted this year.