Taking the pulse of cost reduction in offshore wind - Andy Macdonald Senior Innovation Manager - All Energy
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Taking the pulse of cost reduction in offshore wind Andy Macdonald Senior Innovation Manager 4th May 2016
No more blank cheques
Amber Rudd, Energy Reset Speech, 18th November 2015
“…we could support up to 10GW of new offshore wind projects in the
2020s. If they don’t (move quickly to cost-competitiveness) there will
be no subsidy. No more blank cheques.”
“…if, and only if, the Government’s conditions on cost reduction are
met – we will make funding available for three auctions in this
Parliament.”
Rt Hon Amber Rudd MP
Secretary of State for https://www.gov.uk/government/people/amber-rudd
Energy and Climate Change
George Osborne, Budget Speech, 16th March 2016
“Budget 2016 announces that the government will auction Contracts
for Difference of up to £730 million this Parliament for up to 4
GigaWatts of offshore wind and other less established renewables,
with a first auction of £290 million.
Support for offshore wind will be capped initially at £105/MWh (in 2011-
12 prices), falling to £85/MWh for projects commissioning by 2026. The
Rt Hon George Osborne MP
Chancellor of the Exchequer government will continue to control costs on consumer bills – further
details will be announced in the autumn.”
https://www.gov.uk/government/publications/budget-2016-documents/budget-2016
Cost Reduction Monitoring Framework
CRMF provides industry and policy
makers with an impartial evidence-
based assessment of the progress and
trajectory of cost reduction in the
offshore wind sector.
It is increasingly important to ensure
the pivotal position of offshore wind in
the UK’s low carbon energy future.
CRMF 2014 CRMF 2015How CRMF operates
Questionnaires Qualitative Qualitative
- Operators Evidence Log Summary Report
- OEM (300 pages) (50 pages)
- Supply Chain
- Finance
Follow Up Interviews
Independent Experts
- Finance Developer LCOE Quantitative
- Vessels Calculator Summary Report
Catapult Engineering Quantitative Data
Experts Quality Review
*Quantitative only carried out if sufficient projectsHow CRMF is measured
2014
2015
2016
2017
2018
2019
Work Level 1 Level 2 Level 3
Outlook(2020)
stream Indicators Indicators Indicators
E.g. Do you think 60% of
E.g. Array
66kV projects reaching FID in
Cables
E.g. Cables 2020 will choose to use
Balance 66kV array cables?
E.g. of Plant E.g.
Technology Support
Structures
Outlook is
High
Confidence
Indicator milestones
e.g. in 2015 10% EU Indicator is
commercial projects will behind target
contract using 66kV
cablesQualitative Assessment 2015
2014 2015 OutlookFindings (1)
Indicator Assessment Finding
PM and On target ▲ Progress in floating lidar deployment
Development ▼ Reduction in progress for site investigation
Turbines Ahead of ▲ Progress in contracting 6MW+ turbines across the EU, still ahead of the Pathways
target technology acceleration scenario
▼ Lack of progress in control/nacelle mounted lidar and superconducting generators
Balance of On target ▲ Progress in contracting XL monopoles
Plant ▬ 66kV hesitation - likely to happen in EU before UK at commercial scale
OFTO Capex On target ▲ Standardisation of AC substations due to portfolio approach
▼ Overplanting is not evidenced in projects reaching FID in 2015
Installation On target ▲ Lifting conditions for blades is progressing quicker than anticipated
▼ Better suited vessels (DP etc.) lagging due to lack of orders placed
O&M On target ▲ Increased use of next generation CTVs
▼ Need for better understanding of assumptions in designs to support life-extension
campaigns
▼ No clear evidence of improvement in OFTO O&M
Design Life Ahead of ▲ Increased structural heath monitoring
Target ▲ 25yr Industry standard design lifeFindings (2)
Indicator Assessment Finding
Growth and Behind target ▼ UK market dropped behind anticipated progress since last year
scale ▬ EU market has advanced to where expected
Competition On target ▬ Continued consolidation of turbine OEMs although new entrants in demo
▬ Vessel supply lagging behind market and now too late to invest for 2017
Collaboration On target ▲ Use of adapted LOGIC forms and standard clauses increasing
▼ Supply chain involvement impacted by CfD. Involved less for design work and instead
pressured for more accurate costs, earlier with less information
Cost of equity On target ▼ Progression of private equity into DEVEX unlikely
▬ Cost reduction not 100% clear in equity with variety of approaches by developers
▲ Increasing interest from new sources of equity beyond utilities for UK offshore wind
Cost of debt Ahead of ▲ Cost of debt reduced beyond 2020 outlook
target ▲ Highly liquid market and advances in capital availability much faster than expected into
construction
▲ Syndicated debt coming into market in much larger numbers
▲ EIB supporting both availability and cost reduction
Cost of Ahead of ▲ Insurance costs are down but could change if major serial defect
insurance targetOutlook to 2020
Outlook score Indicator
Low levels of • Growth and Scale
confidence • OFTO Capex
Medium levels of • Installation
confidence • Balance of Plant
• Cost of equity
High levels of • Turbines
confidence • O&M
• Increased design life
• Competition
• Collaboration
• InsuranceSummary findings • £100/MWh achievable by 2020 • The areas that make the largest contribution to cost reduction remain on target or ahead of target • Low confidence in achieving the 2020 milestones in growth and scale and OFTO capex. Medium confidence in balance of plant, installation and cost of equity, indicating that risks remain • Lack of visibility of market deployment is leading to reduced investment in R&D and manufacturing infrastructure. • The introduction of the CfD auction process is broadly supported across the sector but has indirectly introduced additional barriers to cost reduction.
Summary recommendations • Work with Government to enable further CfD auctions in 2016 and subsequent years and to provide clarity on the budget allocation for offshore wind • Prioritise industry support for areas where 2020 innovation targets are at risk • Coordinate industry and government to overcome the barriers to cost reduction indirectly introduced by the CfD auction process • Track the impact of slower than anticipated market deployment on investment in R&D and manufacturing infrastructure • Identify technology innovations that will deliver further cost reductions post-2020
Cost Reduction Monitoring Framework
https://ore.catapult.org.uk/crmfContact us ORE Catapult ORE Catapult Inovo National Renewable Energy Centre 121 George Street Offshore House, Albert Street Glasgow Blyth, Northumberland G1 1RD NE24 1LZ T +44 (0)333 004 1400 T +44 (0)1670 359 555 F +44 (0)333 004 1399 F +44 (0)1670 359 666 info@ore.catapult.org.uk info@ore.catapult.org.uk ore.catapult.org.uk
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