catapult
Cost Reduction Monitoring Framework 2016

Results

Quantitative Assessment Results

The Quantitative Assessment concluded that projects reaching FID in 2015/16 achieved an industry average LCOE of £97/MWh². The following chart shows how the average for 2015/16 compares with the averages for projects reaching FID in 2010-11 and 2012-14:

Data was also gathered for projects that reached Works Completion in 2015/16. These projects reached FID several years earlier than the 2015/16 FID project sample and typically use turbines rated between 3MW and 4MW compared to the 2015/16 FID project sample which is dominated by turbine ratings of over 6MW.

Each data point is an average of at least three projects but as the period from FID to Works Completion varies between projects there is not a complete match between the projects that make up the FID samples and the projects in the Works Completion samples.

The industry average LCOE of £125/MWh for projects reaching Works Completion in 2015/16 shows that cost reductions were already happening ahead of the introduction of larger turbines.

Quantitative Assessment Methodology

ORE Catapult commissioned KPMG to conduct the Quantitative Assessment following the process used in the 2014 Quantitative Assessment.  An LCOE calculator was populated by the owners of projects that reached FID or Works Completion in 2015 and 2016.  This captured the high level Capex, Opex and generation data for KPMG to analyse.  This was complemented by a qualitative interview with each of the developers. In this interview, KPMG asked a series of questions about environmental, regulatory and technical factors to establish the context for the cost reduction being observed in the offshore wind market. The sample of projects included in the assessment is shown in the following table:

2015-16 FID Project NameCapacityFID date
Rampion400MWMay 2015
Race Bank546MWJune 2015
Galloper336MWOctober 2015
Walney Extension I & II649MWOctober 2015
Burbo Bank Extension*256MWDecember 2014
Beatrice588MWMay 2016
Hornsea I1,197MWFebruary 2016
East Anglia I714MWFebruary 2016

**Burbo Bank Extension reached FID in December 2014 but is included in this assessment as it was not included in the previous quantitative study for 2012-2014.

2015-16 Works Completion Project NameCapacityWorks Completion Date
Westermost Rough210MWMay 2015
Gwynt y Mor576MWMay 2015
Humber Gateway219MWMay 2015
West of Duddon Sands**
(50% weighting)
389MWOctober 2014

**West of Duddon Sands was included in the Works Completion sample with a 50% weighting.  This was to preserve the confidentiality of responses taking into account overlap of existing and historic ownership.

Qualitative Assessment Results

Cost reduction progress was measured for 70 cost reduction indicators. Each area was assessed against a set of milestones that lead to a 2020 target for that indicator. The 70 indicators are weighted by cost reduction potential and consolidated into 14 top level indicators that are shown in the diagram below:

Insurance
PM & Development
Turbine Technology
Integrated design & control
Balance of Plant
Transmission Capex
Installation
O&M
Increased design life
Growth & Scale
Competition
Collaboration
Cost of equity
Cost of Debt
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Select a project from the graph to view results
2016chartsegments
Insurance
2014 Score:ON TARGET
2015 Score:AHEAD OF TARGET
2016 Score:AHEAD OF TARGET
Outlook 2020:MEDIUM CONFIDENCE

Construction phase insurance premiums have remained relatively stable, while operations phase premiums have reduced from 2015. Increasing number of players has meant more competition, but still perceived to be room for better risk pricing as more data becomes available.

PM & Development
2014 Score:ON TARGET
2015 Score:ON TARGET
2016 Score:ON TARGET
Outlook 2020:HIGH CONFIDENCE

Increased developer competition has led to increased interaction between developers and the supply chain during FEED in order to get the most accurate cost estimates for CfD auction bids. Increased competition has also accelerated the introduction of new technology (e.g. 66kV). There is still room for improved interaction with the supply chain to optimise project designs.

Turbine Technology
2014 Score:AHEAD OF TARGET
2015 Score:AHEAD OF TARGET
2016 Score:AHEAD OF TARGET
Outlook 2020:MEDIUM CONFIDENCE

The implementation of 6MW to 8MW turbines has been achieved ahead of target and the Turbine Ratings indicator remains the largest single contributor to cost reduction.  Most projects that reached FID in 2015/16 are planning to use 7MW or 8 MW turbines.

Integrated design & control
2014 Score:ON TARGET
2015 Score:ON TARGET
2016 Score:BEHIND TARGET
Outlook 2020:MEDIUM CONFIDENCE

Integrated design, and advanced control methods based on nacalle lidar and wind farm wide strategies, remain opportunities for significant cost reduction.

Balance of Plant
2014 Score:ON TARGET
2015 Score:ON TARGET
2016 Score:ON TARGET
Outlook 2020:MEDIUM CONFIDENCE

For jackets, the standardisation of design elements is key to cost reduction, requiring collaboration between designers, fabricators and installers. The commitment of 66kV array cables to projects reaching FID in 2016 was seen as a key milestone.

Transmission Capex
2014 Score:ON TARGET
2015 Score:ON TARGET
2016 Score:ON TARGET
Outlook 2020:MEDIUM CONFIDENCE

Good progress on substation design (standardised and distributed approach) has been achieved. The use of compact HVDC systems in the UK is not anticipated before 2020.

Installation
2014 Score:ON TARGET
2015 Score:ON TARGET
2016 Score:ON TARGET
Outlook 2020:MEDIUM CONFIDENCE

Purpose built installation vessels for monopiles and jackets have not been required for the current volume of foundations for 6-8MW class turbines. Without clarity of future pipeline, and plans for use of 8MW+ turbines and jackets, investment into specialised vessels is remains challenging.

O&M
2014 Score:AHEAD OF TARGET
2015 Score:ON TARGET
2016 Score:ON TARGET
Outlook 2020:MEDIUM CONFIDENCE

Advanced systems for turbine condition monitoring are available but opportunities remain to make better use of data in condition based maintenance strategies. The cost/benefit balance between new access technologies (e.g. SOVs, SWATH CTV, walk to work) for different sites is still to be determined.

Increased design life
2014 Score:AHEAD OF TARGET
2015 Score:AHEAD OF TARGET
2016 Score:AHEAD OF TARGET
Outlook 2020:HIGH CONFIDENCE

Based on this years evidence, the 25 year design life CRMF target for 2020 has already been achieved.

Growth & Scale
2014 Score:BEHIND TARGET
2015 Score:BEHIND TARGET
2016 Score:BEHIND TARGET
Outlook 2020:MEDIUM CONFIDENCE

Whilst the forecast of 10GW installed by 2020 is in line with targets, the uncertainty over the Levy Control Framework (LCF) beyond 2020/21 has resulted in the overall assessment of Growth and Scale being behind target for the third year running.

Competition
2014 Score:ON TARGET
2015 Score:ON TARGET
2016 Score:ON TARGET
Outlook 2020:MEDIUM CONFIDENCE

The drive for cost reduction has led to some consolidation in the market, though evidence suggested the current level of supply is sufficient for the current market volume. The sustainability of low prices with low certainty on future pipeline was a common theme during interviews with the supply chain.

Collaboration
2014 Score:ON TARGET
2015 Score:ON TARGET
2016 Score:ON TARGET
Outlook 2020:MEDIUM CONFIDENCE

Increased competition, driven by the CfD scheme, has reduced horizontal collaboration between developers. Vertical collaboration has improved, driven by the need for accurate CfD bids, however this was not universal and evidence noted further room for improvement in the methods of engagement in order to maximise the cost reduction potential.

Cost of equity
2014 Score:ON TARGET
2015 Score:ON TARGET
2016 Score:AHEAD OF TARGET
Outlook 2020:HIGH CONFIDENCE

Risk premiums continue to fall or remain the same as investors become more comfortable with offshore wind. Sufficient capital is available, albeit not always as early in the financing cycle as desirable. Target returns reducing as a result of competition for CfDs.

Cost of Debt
2014 Score:AHEAD OF TARGET
2015 Score:ON TARGET
2016 Score:AHEAD OF TARGET
Outlook 2020:HIGH CONFIDENCE

Margins, as well as all-in costs, are tracking below the target levels, though it is proving challenging to fulfil the increasingly large funding tranches in the timeframes required. Gearing has increased to ~70% where project finance is used, though some owners still prefer balance sheet funding.

Show All
2014 Score:
2015 Score:
2016 Score:
Outlook 2020:

Early deployment of higher rated turbines

The implementation of 6MW to 8MW turbines has been achieved ahead of target and the Turbine Ratings indicator remains the largest single contributor to cost reduction. There is potential for further cost reductions from turbine related integrated design and whole farm control systems. Without evidence of demonstration activity in these areas, the Integrated Design and Control indicator has been assessed as behind target.

Reduction in cost of capital

Confidence in the sector has continued to increase with both cost of debt and cost of equity ahead of target. The evidence gathered confirmed that a reduction in cost of capital has contributed to the overall reduction in LCOE.

Growth and scale

Growth and Scale remains behind target and whilst the forecast of 10GW installed by 2020 is in line with targets, the uncertainty over the Levy Control Framework (LCF) beyond 2020/21 has resulted in the overall assessment of Growth and Scale being behind target for the third year running. The UK Government took the positive step of announcing further auction rounds in November 2015 but it took a year before the timetable was announced. For smaller new entrants to the supply chain this lack of certainty is difficult to manage.

The full outputs of the Qualitative Assessment can be found in the two outputs³:

  • CRMF 2016 Qualitative Assessment Report
  • CRMF 2016 Qualitative Assessment Evidence Log

Qualitative Assessment Methodology

The qualitative assessment data gathering was carried out between August and October 2016 with a representative selection of developers, supply chain and finance organisations.  The assessment included evidence from 48 consultations via questionnaires and interviews.

The main consultation was carried out ahead of the UK Government’s announcement of the second auction round4. However, the size of the auction is in line with previous announcements so is unlikely to have had an impact on the perception of growth and scale but will have helped to reduce uncertainty in the short term.

The qualitative assessment provides strong supporting evidence that aligns with the results of the quantitative assessment.  However, the major drivers (turbine ratings and cost of capital) have had a proportionately greater impact on LCOE than forecast when CRMF was designed three years ago. A reassessment of cost reduction potential for each area should be part of a future cost reduction implementation plan.

2 Costs are stated in 2011 real terms to remain consistent with the £100/MWh target.
3 CRMF 2016 Qualitative Assessment Report and Evidence Log are available at http://ore.catapult.org.uk/crmf
https://www.gov.uk/government/news/government-sets-out-plans-to-upgrade-uk-energy-infrastructure-and-increase-clean-energy-investment