catapult
Cost Reduction Monitoring Framework 2016

Findings

Technology

Improvements in technology ranging from larger rated turbines to innovations in installation have had the largest impact on LCOE.

The deployment of 8MW turbines at Burbo Bank Extension is a major achievement and most projects that reached FID in 2015/16 are planning to use 7MW or 8 MW turbines. There is also scope to evolve these platforms to gain further benefits through optimised rotor diameter and enhance control systems.

The potential for optimised electrical infrastructure is being realised with several projects that have reached FID, contracted to use 66kV array cables. Distributed lightweight transformers are providing lower cost alternatives to larger bespoke substations. Where developers have sufficient pipeline, standardisation of substations is also making strong progress.

Good progress has been made in the development of lower cost foundations suitable for a wider range of site characteristics. The demonstration sites (Blyth Offshore Demonstrator and European Offshore Wind Demonstration Centre) are in the early stages of construction and will demonstrate gravity base and suction bucket foundations respectively.

The UK has been successful in winning some of the jacket fabrication contracts but the small scale of the longer term pipeline of orders provides a challenge for fabricators. Visibility of a more consistent pipeline would give fabricators the confidence to engage with designers to enable further efficiencies during fabrication activities.

Competition

Increased competition at developer level has played a significant role in cost reduction.  The pipeline of developed sites is several times larger than the allocation available and has forced developers to deliver cost efficiencies.  This has put pressure on the supply chain where reduced margins are being seen. Innovation driven supply chain competition has supported competition at the developer level, and together that has driven material change in the economics of offshore wind.

Whilst the increased level of competition is a direct driver of cost reduction, there is evidence that it is a barrier to collaboration between developers. Vertical collaboration within the supply chain has increased where developers are seeking to refine procurement costs ahead of the CfD auctions.

Commercial impact

The offshore wind industry has grown rapidly in the last five years. Technology has evolved, supply chains have been built through expansion, cross-sector entrants and developer in-house capability. Having been through a period of growth, a period of consolidation is commencing, at both the turbine OEM level (Gamesa and Siemens Wind Power, GE and LM Windpower), in the supply chain (NKT and ABB) and in the installation contractor market.

Whilst there is potential for over-consolidation to reduce competition, this is not the case so far and all areas assessed have sufficient competition to increase efficiencies and encourage innovation.

UK content

There has been an increased focus on the level of UK content in offshore wind projects in the last year.  The supply chain plans that were a requirement of the CfD process are now moving into implementation and the CRMF consultation highlighted a range of views from the supply chain.

Evidence was presented that highlighted success stories in the UK supply chain; JDR Cables have won contracts for array cables across Europe, Siemens Wind Power opened the Hull blade manufacturing facility, Babcock have been successful with substation topside manufacture, BiFab and Harland and Wolfe have won contracts for jackets and CS Wind are expanding their capability to include offshore towers. The MHI Vestas Offshore Wind facility on the Isle of Wight supplied the 80m blades for the V164-8.0 MW Burbo Bank Extension project. There is also a continued high level of UK content in the development and operational phases.

These successes are balanced by a view from consultees that the level of UK content could be increased as part of an ambitious UK Government industrial strategy. This would strengthen cross sector synergies and target skills and infrastructure support at areas of high growth potential in UK and global markets.

Market impact

The downturn in the oil and gas sector has led to an increased supply of non-specialised installation vessels and has resulted in lower vessel day rates. Combined with a deployment rate that is lower than forecast five years ago this has led to a slowdown in the procurement of new specialist vessels. The exception to this is in the area of Service Operation Vehicles (SOVs) with new vessels delivered and further orders made in 2016.

The quantitative assessment reviewed the impact of exchange rates and commodity prices and whilst these remain important factors in overall project costs they were not of major significance compared to the impact from improvements in technology, supply chain and finance.