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Europe: Supply chain investment study - Offshore visibility not clear enough

Britain's offshore wind power developers say the recent boost in government support for the sector is enough for construction of all "good" projects that can reach financial close while the incentive is in place.

Over the next five years, solid progress will be made in delivering projects, but from 2011 when the extra support comes to a close, the economic case remains uncertain for the more ambitious third round of development, states an analysis of the offshore supply chain commissioned by UK seabed owner the Crown Estate.

No critical barriers to large scale deployment offshore wind remain - provided the supply chain has the confidence to invest, says the study by BVG Associates. "Currently, it does not; it acts to provide what is needed now without in many cases investing wholeheartedly in the future," the report states. Although the supply chain is keeping up with customer demand, there are no signs that it is investing ahead of time.

Three constraints

The sheer scale of the third round of offshore project licensing has made the supply chain sit up and take notice, the report finds. Overall, the view of the future of offshore wind is positive. But despite healthy order books for some, much of the positive view is about what is to come, not what is here today, it says. "That is not sufficient to move focus from other markets, whether that be oil and gas for some or onshore wind for others."

The government's injection of cash into the offshore sector is only temporary, to compensate for the current poor economic climate and the low value of sterling against the euro, in particular. During the 2010-2011 financial year, allocation of Renewables Obligation Certificates (ROCs) to offshore projects is to be stepped up from the current 1.5/MWh to 2/MWh before reverting to 1.5/MWh. The sale of ROCs to electricity suppliers, who under the Renewables Obligation legislation must acquire a rising proportion of their electricity sales from renewable energy sources, provides an additional stream of revenue for wind power generators.

Looking at the three key supply chain constraints - turbines, vessels and cables - the report finds none to be a show-stopper. Turbine supply continues to improve and suppliers are willing to provide more machines for offshore use than they were a year ago. No new investment is needed to meet demand beyond that already planned, the report states.

Lack of pedigree

With only two manufacturers - Vestas and Siemens - so far able to boast a pedigree of at least 200 MW in offshore wind, the lack of competition is cause for concern to developers. But by the end of 2011, three further manufacturers are expected to have established a reputation - Repower, Bard and Multibrid - and 2015 should see three more.

Installation vessels are a different matter; investment is needed now to meet the increase in the EU industry's needs by 2012, though production of new ships could be ramped up quickly due to the global availability of shipbuilding capability. For subsea cables, investment decisions by suppliers will be needed in 2011, particularly as projects go further offshore from 2015.

One area of universal concern for the industry, the study finds, is the inconsistency of UK targets for offshore wind. Views on potential for offshore wind by 2020 vary from less than 10 GW up to 33 GW quoted by the Crown Estate; this lack of clarity is hampering investment, says the report, which suggests a target of 20-22 GW as more rational. This level of deployment is still seen by the industry as a "tough demand," if one that is achievable without too much risk, it points out.

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