While many had hoped the next phase in the growth of offshore wind would be well under way the uncertainty which has held it back appears over – at least for a few years – and the industry is primed for rapid growth.
In recent months the Government has sanctioned over a handful of major Round 3 developments worth up to £20bn creating a healthy pipeline of work.
Danish company DONG Energy has emerged as the main player and its UK head is keen to engage with the North East supply chain.
Brent Cheshire, managing director, of DONG Energy has been involved in the sector for the last 11 years, overseeing a UK investment by the company in offshore wind of over £4bn in that time.
He said: “The industry is gearing up. One of the problems we have had is the visible pipeline of future work which has just not materialised for people to make that commitment to the sector.
“But that is changing and there is now a critical mass to drive the industry forward.”
He added: “As a company we want to buy British and our aim is achieve 50% UK content. We are trying really hard to achieve that. We are desperate to work with UK companies.”
The UK is currently the world’s largest offshore wind market with 4GW of installed capacity, with almost all of these turbines being supplied from overseas.
But this is about to change with Siemens’ announcement last year that it would open a £160m turbine blade factory on Humberside.
Siemens has been attracted by the new larger Round 3 sites which will require up to 5,000 turbines. The three largest of these – Dogger Bank, Hornsea and East Anglia – are all off the east coast of England.
The company has also been encouraged by the seven Contracts for Difference (CfD) awarded to the sector and the Government’s target of 10GW of installed capacity by 2020.
Ray Thompson, business development manager for Siemens offshore, said: “The Round 3 sites are now taking off. It’s later than many people had thought and hoped and there has been some attrition along the way. It will be at least a £50bn industry. We had initially envisaged 30GW of capacity, but around one-quarter of this has dropped off.
“There had been lots of uncertainty caused by the CfDs and the Electricity Market Reform programme but there is now a visible pipeline of projects.
“Installation-wise this year, with just two projects underway, it will be slow but after that it will ramp up with some 1.5GW being delivered a year.”
Both Siemens and DONG Energy are encouraging participation from the UK supply chain and are under pressure from the Government to boost local content.
Mr Thompson said: “To secure the FID (Final Investment Decision) and attract Government support we have to show our commitment to the UK and this is what Siemens has done with its decision to open in Hull.” Humberside is now the UK hub for the industry with the UK’s two main developers Dong and Statoil both in-situ.
DONG now employs 600 people in the UK, including the oil and gas sector across 10 sites, and is the largest global player in the offshore wind industry.
Mr Cheshire believes that there will be enough work for additional manufacturers of towers, blades and foundations to establish production facilities in the UK.
“There will be more than one manufacturer if people have the right attitude, there’s lots of catching up to do.
“These projects have created that pipeline of work and there is now a real opportunity. We now have the confidence we need and the sector can start building into that,” he said.
Andrew Hodgson, chief executive of Wallsend-based SMD is also chairman of Subsea North East and vice-chairman of the North East Local Enterprise Partnership.
He also believes we may see more than one manufacturer and highlights how the North East supply chain can benefit the industry.
He said: “The North East is a hub of advanced manufacturing where we have a highly skilled supply chain. The technology-led companies here in the region can support the growth of the industry.”
DONG is currently working on the Westermost Rough development, a Round 2 site off the Humber, and its Burbo Bank extension in Liverpool Bay is also progressing.
This will be using 8MW blades made by Vestas at its recently re-opened factory on the Isle of Wight, and the transition pieces will be made on Teesside by Offshore Wind Europe.
DONG is using onshore substations which have been designed by UK-based Atkins with Fabricom in the UK also winning some of the work.
The company says it has awarded a large construction contract to Balfour Beatty and has spent £50m on development at Belfast Harbour.
Mr Cheshire added: “We are trying to do an awful lot more in the UK but there also needs to be an appetite in the UK from the contractors themselves.”
With offshore wind receiving subsidies of up to £150 per MW/h the Government wants to see costs come down quickly.
Mr Cheshire said: “Costs are coming down and by 2023 we believe they will have come down by 40% to €100 per MW/h.
“The two latest CfD bids, which were awarded at £119 and £114, show that progress is being made.”
DONG is currently looking to standardise across the different stages of construction which include; onshore substations, cables, offshore substations, and the foundations and turbines, hoping these can help drive economies of scale.
Mr Cheshire says that as it amasses greater project experience it is able to reduce the technical and commercial risk, and optimise site selection in terms of seabed conditions.
Mr Thompson said: “North East companies with experience in the offshore oil and gas industry should have the transferable skills and expertise to make headway in the offshore wind industry, but it may be more difficult for those from outside the industry.”
While there is plenty of work for the next four to five years there is still concern over the long-term pipeline. Mr Thompson said: “We need a clear message beyond 2020. To hit our renewable targets we will need offshore wind, but the Government has still not committed beyond 2020 and it’s tough for the supply chain to invest.”
Energy Minister Matthew Hancock addressing NOF Energy’s annual conference Energy: A Balanced Future at Sage Gateshead last week, said: “We’re supporting significant levels of offshore wind deployment now to enable industry to drive down costs, invest and innovate so that offshore wind is well positioned to expand in the 2020s and beyond.”
He went on to say that the North East, as a “significant exporter of offshore manufacturing and engineering expertise”, would have a crucial role to play in the industry.
With the industry being becalmed in recent years many North East supply chain companies have put their expansion plans on hold.
But some, including Osbit Power, are now stepping up efforts. The Riding Mill-based engineering firm recently opened a base in Lowestoft, where the offshore wind industry is also gathering momentum.
Joanne Leng MBE, deputy chief executive of North East offshore supply chain group Energi Coast, said: “Brent Cheshire, managing director of DONG Energy Wind Power painted a positive picture for the industry, when he spoke recently at Energy: A Balanced Future, which will create opportunities for the supply chain.
“The sector is building some momentum and the North East is perfectly-placed in terms of geography and capabilities to serve the UK and European wind markets. Companies like DONG are keen to engage with UK suppliers and benefit from their technology-led solutions and established skills-base.”