The UK needs Germany for offshore success

EUROPE: Twelve months ago, the UK was the undisputed leader in offshore wind with many, me included, expecting that it would retain that position in Europe until well beyond 2020. By the end of next year, 3.5GW of wind plant will be installed in UK waters - almost as much as the country has built onshore over the past 20 years.

As 2011 draws to a close, however, many see the UK offshore wind industry as decidedly less buoyant.

It is a fact that 2013 and 2014 will be lean years for construction, with developers unable to take advantage of the renewables obligation credits regime due to lack of projects coming through the consenting process. Only in 2015 will UK deployment regain 2012 levels, before doubling in 2016 as the next round of projects start to be installed.

The government's Renewable Energy Roadmap, published earlier this year, confirmed that offshore wind would make the largest contribution to renewable-energy generation targets. But, sensitive to the cost of offshore wind to consumers and a sceptical right-wing press, it indicated that up to 18GW by the end of 2020 could only be achieved if the cost of energy from offshore wind is cut by more than a third. Uncertainties introduced through the move to a contract for difference feed-in tariff, continued wrangles over the offshore transmission regime and a new - as yet untested - consenting arrangement have introduced significant doubts about the vision of industrialisation to deliver offshore wind in UK.

Indeed, many in the UK wind industry now cast envious looks across the North Sea to Germany, which has abandoned its nuclear programme in favour of accelerating offshore wind. Although Germany to date has less than 300MW of capacity operating offshore, it has a healthy project pipeline, an impressive onshore track record and an established wind-turbine supply chain. France, the Netherlands and Denmark have also recently signalled intent to accelerate activity.

What does this mean for businesses in the sector? It is critical to understand the business opportunity for what it is: a collection of subsidised national markets often sharing a common supply chain, each market immature and facing significant economic and political risk. It is crucial to have a range of vibrant national markets, knowing that as challenges appear in one market new opportunities may arise in another. The supply chain needs far more certainty than a single market can provide in order to mature and bring costs down in the way the UK government seeks. The industry knows it needs to do this to remain the technology of choice for large-scale renewable-energy generation into the 2020s.

Seen in this light, the strength of the German market is not a threat but an opportunity for UK businesses that have already learned many tough lessons about installing and operating wind farms out at sea to enter the wider sector across Europe as it grows.

Pessimists in the UK see the chance to redress the country's previously lamentable contribution to the supply chain slipping away. To me, the strength of UK production facilities outweighs the short-term fluctuations in national demand. The UK has a much larger area of suitable sea bed for development and a better wind resource than anywhere else in Europe. It is the logical place for lowest-cost offshore wind energy at a very large scale. It also has a landowner in the Crown Estate playing a hands-on role investing on a global and project level to make it happen, and it has legislative frameworks in place for the long haul. For businesses looking to make long-term investment decisions, these factors count.

Bruce Valpy is managing director of consultancy BVG Associates. He is currently leading work within the Crown Estate's offshore-wind cost-reduction pathways project.

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