United Kingdom

United Kingdom

Rewards enough to cover offshore risk

The offshore ball is rolling once again in Britain, kicked into action by the government's decision in May to raise purchase prices for electricity fed into the grid by 50%. With 100 MW being commissioned, another 450 MW in three projects being built and a further 1600 MW fully consented and on the way to construction, Britain's offshore wind generating capacity should reach around 2450 MW by the end of 2010, supplying about 2% of the country's electricity.

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Given a consistent market on which to build an industry, offshore wind power in 2020 could be contributing the lion's share of green electricity in the UK, with the country getting 33% of it power from renewables, two-thirds of that from winds harnessed at sea

The offshore ball is rolling once again in Britain, kicked into action by the government's decision in May to raise purchase prices for electricity fed into the grid by 50%. With 100 MW being commissioned, another 450 MW in three projects being built and a further 1600 MW fully consented and on the way to construction, Britain's offshore wind generating capacity should reach around 2450 MW by the end of 2010, supplying about 2% of the country's electricity.

Beyond what is already building or about to start site work, a further 4590 MW is in the pipeline. Of that, some 2750 MW has applied for consent, with 1840 MW working towards a consent application. Moreover, the prospects are good for a large proportion of this capacity to get the go-ahead from government; unlike onshore projects, no offshore wind farms have yet been rejected outright at the consenting stage. Most of the projects are planned for three strategic areas: the Greater Wash off the east coast of England, the outer Thames estuary further south along the same coast and in the Irish Sea off north Wales and north-west England. All the projects in the consents process have already been granted site development leases by seabed owner the Crown Estate after two rounds of bidding for the coveted lease, the first in 2001 and the second in 2003.

Until the good news from government in May, most of the projects had been on hold. Unlike the 415 MW of capacity already built off the UK coastline, the next wave will not get capital grants from government and must rely entirely on income governed by the country's renewables obligation (RO) legislation. With high demand for wind turbines raising their prices over the past year, the cost of building offshore had become greater than purchase prices under the RO would compensate for, particularly since the second wave of construction is happening further offshore, making it more expensive to build.

Good incentive

Accepting that the market for green electricity created by the RO was not strong enough to support offshore wind development, the government took action, pledging to reform the RO to provide a higher level of support to less commercial renewables technologies. Under plans put out to consultation by the Department of Business, Enterprise and Regulatory Reform (DBERR), offshore wind will receive 1.5 Renewables Obligation Certificates (ROCs) for each megawatt hour of power, up from a single ROC. The prospect of a 50% boost in income from sales of certificates has been enough to give most offshore developers the confidence proceed.

The 1.5 ROCs provide a good incentive, says developer Centrica, but cost and supply chain availability is still an issue. Turbines, vessels and cables are all in short supply. Only one turbine manufacturer, Siemens, is currently supplying the offshore market after Vestas suspended sales of its 3 MW turbine for offshore applications until it has dealt with reliability problems that have dogged its machines in a number of offshore locations. Gearbox and gearbox bearing problems are reportedly part of the trouble. As if that were not enough of a brake on progress, only a few vessels are currently equipped to service the sector. To get around that bottleneck, back in January Centrica chartered wind turbine installation vessel MV Resolution for its exclusive use for four years, although it will consider chartering it to others in periods when it is not needed.

The ship is being used at its Lynn and Inner Dowsing wind farms under construction off the east coast of England and will be used at its 250 MW Lincs project if it goes ahead. Lincs is waiting for a response from government to Centrica's application for consent. "At the end of 2008 the board will have to make an investment decision on Lincs," says Centrica's Andrew Hanson. "It's too early to say what that might be at the moment; the market is still tight."

Centrica also owns 50% of the operating Barrow wind farm off north-west England and has development licenses for two more developments: Race Bank and Docking Shoal. The company says it is putting together environmental impact assessments for the two sites. "Once done we'll apply for the consent; we don't have a specific date but we're looking at end of this year/early next year," says Hanson.

Since the first wave of UK offshore projects, costs have risen sharply, continues Hansen. The 90 MW Barrow wind farm cost between £105-110 million; by contrast, the 180 MW Lynn and Inner Dowsing projects are costing around £300 million. "In eighteen months the market has changed," he points out. Moreover, for energy companies like Centrica, offshore wind is competing for board approval for funding with other low carbon technologies also in their portfolios, such as nuclear and clean coal with carbon capture.

The pinch points

From the British Wind Energy Association (BWEA), Gordon Edge agrees there are short-term pinch points, particularly in turbine supply and vessels. "But I am pretty sanguine that come 2010 they will be solved." He concedes, however, that "it would be good to have more than one supplier at the moment." That may not take long. Other companies are developing machines for the offshore market and Gordon predicts that by 2013 there will be four or five suppliers with significant amounts of capacity in the water.

Among these will be Germany's Repower and possibly a newcomer to the offshore turbine scene: French nuclear giant Areva. It has just extended its wind turbine manufacturer holding beyond a stake in Repower to acquire 51% of the German company responsible for the Multibrid 5 MW turbine, currently being tested onshore (page 44). American Clipper has also voiced offshore aspirations (page 60) and Vestas is expected to make a come back. "But a significant amount of punt-taking needs to be done," warns Gordon. "Developers will have to take a certain amount of risk with new turbines until the machines are proven."

He also sees the shortage of installation vessels as a short term issue. More will come along to service the sector as the pipeline of offshore projects increases. There are vessels out there that could be adapted quite quickly for offshore wind. It is just a question of cost and competing interests, he says, pointing out that there has also been a recent upsurge in activity in the oil and gas sector. Availability of cables is not an issue, he claims: "There is no shortage of cable capacity."

Mood change

Edge contrasts the upbeat mood of the UK offshore wind industry today with the gloom of six months ago. With the government's proposals to boost funding through the RO, the increasing numbers of turbines in the water, and announcements for projects coming thick and fast, he comments: "It is pretty clear that there will be ten to twelve years of continuous development." This is enough to stimulate a supply chain to gear up to share in the billions of pounds of investment.

Two of the announcements that he refers to relate to two sites in the Thames estuary on a level with London. These are the closest among the second wave of projects to being realised. Both have recently cleared significant milestones and are forging ahead towards construction. The first in the water is set to be the 300 MW Thanet project, 11 kilometres off the north-east coast of Kent. Now that project developer Warwick Energy has sold Thanet to private money management firm Christofferson Robb and Company, funding is secured for construction. Agreements were finalised last month for Christofferson Robb to buy all of Warwick's shares in the project. As part of the deal, Warwick Energy will manage the construction and operation of the 100 turbine wind farm. "We were always going to have to sell most of the equity in the project," says Warwick's Mark Petterson. One possibility the company had been considering was to retain a 10% equity stake. "But as it turns out, there are suitable incentives within the management agreement which give us a similar return."

Construction contracts for Thanet will be finalised over the next few months. Warwick had already lined up preferred major contractors before the project secured consent in December 2006. A question mark remains, however, over the turbine supply contract. Warwick's chosen supplier is Vestas. Petterson still hopes to sign contracts with Vestas later this year, subject to the manufacturer completing its technical work on the 3 MW turbine and convincing Warwick of it reliability. If all goes to plan, the project could begin operation in 2009.

The other round two project to have cleared the major hurdles towards construction is the 1000 MW London Array wind farm. Up to 341 turbines are being developed in the mouth of the River Thames by three big energy companies, E.ON UK, Shell Wind Energy and DONG of Denmark. The government's decision in August to grant permission for the onshore substation means the project now has all the consents it needs. Tendering for the construction contracts is underway and a decision on the turbine supplier is likely around the first quarter of 2008. The wind farm will be built in two phases, with the first phase to comprise up to 175 turbines. Construction is not expected to start before 2009.

Technology choice

In a further recent announcement, Irish wind company Airtricity and British Fluor have signed up manufacturer Siemens for their 500 MW Greater Gabbard project, also in the outer Thames estuary area. British Fluor is one of the largest publicly owned engineering, procurement and construction companies (EPC) in the world. Under a reservation agreement, Siemens will supply 140 of its 3.6 MW turbines for delivery in 2009 and 2010. At present the project is a 50-50 joint venture between Airtricity and Fluor, although Fluor plans to sell most of its stake upon financial close, retaining a 10% share. But Fluor will be the EPC contractor under a long term turnkey contract. Construction starts in mid 2009 with completion by end 2010.

Unusually, the wind farm's financing will not be coming from a group of big energy concerns, says Fluor's Michael Dedieu. Instead it will be project financed, meaning that loans will not have recourse in other than the wind farm and its earnings. The Greater Gabbard partners will be approaching the lending market shortly. They hope to see the financing in place early next year.

Airtricity's Chris Veal would like to see the government's RO proposals become a reality as quickly as possible. "While it remains only an intention of the government to introduce 1.5 ROCs for offshore, offtakers will not provide us with secure revenue streams," he says. "On the other hand people who are supplying equipment to projects see more money flowing to the sector and put up their prices."

The remaining project ready to go ahead off the south-east coast, just north of the Thames estuary, is DONG's 64 MW extension to its consented 108 MW Gunfleet Sands project off Clacton in Essex, one of the first wave of UK projects with a capital grant. DONG acquired the rights to Gunfleet Sands from GE Energy in December 2006, which had inherited them from its purchase of Enron's wind business. In June this year, DONG lodged an application for consent for the 22-turbine extension and hopes to have a response from the DBERR by the end of the year. If granted, the company will build the first and second stages of Gunfleet Sands as one project; Siemens is already lined up to supply the turbines. DONG says that construction of the onshore works could begin in the first half of 2008 with turbine installation beginning a year later, and commissioning in the second half of 2009.

While the Thames estuary projects are shaping up to be the first wind farms to be built that have site development leases granted by the Crown Estate in its second round of lease allocation, the north-west strategic area looks set to be next in line. Here, three projects are awaiting a response to consent applications lodged last year: Npower Renewables' 750 MW Gwynt y Mor project off north Wales, DONG's 600 MW Walney project off Cumbria, and the nearby 500 MW West Duddon, being developed by Morecambe Wind -- a joint venture between utility ScottishPower, DONG and Eurus Energy of Japan, a long time wind power investor and project developer.

It is the Greater Wash on the other side of the country, however, where most barriers have been encountered by developers. Ministry of Defence objections over the effect of wind farms on their radar appeared to be a major stumbling block affecting most of the Wash projects. A solution is now on the table but the issue remains to be fully resolved.

Shipping lanes

More difficult to solve is the conflict with shipping. Not yet off the starting blocks is Npower Renewables' massive 1200 MW Triton Knoll project, the furthest of all the projects from shore. Npower Renewables has been in discussions with the Crown Estate to relocate away from its present site, which conflicts with a major shipping lane into the Humber River. From the Crown Estate, Ian Pritchard agrees that navigation is one of the most problematic issues for Greater Wash projects. "We have been looking with the developers to see whether sites can be adjusted to mitigate against other interests. We are making progress and I think that applications [for consent] will come through, either towards the end of this year or the beginning of next year."

Two projects in the Wash, however, have already pressed ahead with their consent applications: Centrica's Lincs project and Scira Offshore's 315 MW Sheringham Shoal development, which lies 17 kilometres off north Norfolk. Scira is a 50-50 venture between Norwegian oil company Norsk Hydro and Ecoventures BV of the Netherlands.

Still off the east coast, but further north, E.ON UK announced in August that it intends to proceed with its 300 MW Humber Gateway wind farm. The 83 turbines will be sited more than eight kilometres off the coast of East Yorkshire, just north of the Humber estuary. E.ON says it is beginning consultations with local stakeholders. Also at the consultation stage is Warwick Energy's Dudgeon development, another 300 MW wind farm sited some 30 kilometres north of Cromer, Norfolk. According to Warwick's Petterson, the company is about to start site survey work with a view to submitting an application for consent next year.

The most northerly of the Greater Wash projects is Westernmost Rough at 240 MW. In May, DONG took over the site lease in an auction by the Crown Estate after the original lease-holder, Total Energie SA of France, decided it no longer wished to pursue offshore wind in the UK. DONG says it is in the very early stages of project development, studying the meteorological and geological conditions at the site.

The first wave

Meantime, this year has seen further progress for several projects from the first round of offshore development. DONG's 90 MW Burbo Banks project is commissioning and due to be fully operational before the end of the year. Another four are under construction: Centrica's Lynn and Inner Dowsing wind farms in the Wash, which are expected to be completed in 2008, Npower Renewables' 90 MW Rhyl Flats project off north Wales, due for completion in 2009, and the 180 MW Robin Rigg project in the Solway Firth, a fjord marking the western edge of the border between England and Scotland. It is being developed by E.ON UK and is also expected to be operational in 2009.

Barge lost its footing

Robin Rigg, however, has been beset by delays this year. The latest came last month when all 38 crew members on board a jack up barge, the Lisa, had to be rescued after two of its legs punctured the seabed causing the vessel to list. The barge, based in Rotterdam, was on site to install the 60 turbine foundations. E.ON and the Lisa's owners, Smit and MTH, are to conduct an investigation into the incident. E.ON says it will be difficult to know when the barge will be back in action until it assesses the extent of any damage to the legs. He says the company is confident that the seabed conditions that caused the incident will have no bearing on the wind turbines once installed. The 50 metre deep foundations are installed into rock below the seabed, he points out.

Last month also brought good news for French utility EDF when the government granted consent for its 90 MW Teesside wind farm off Redcar in north-east England. Earlier in the year the company pulled out of its Cromer wind farm off Norfolk, saying the site was uneconomic to develop.

The go-ahead for Teesside means that all round one projects have now received consent with the sole exception of Shell Flats off Blackpool in the north-west. Being developed by Cirrus Energy, a consortium of ScottishPower, Eurus Energy, Shell Wind Energy and DONG, the project has been stalled due to objections from the Ministry of Defence over radar interference and the Royal Society for the Protection of Birds and English Nature over its impact on birds, in particular the common scoter. Cirrus has now relocated the turbines to a new site, reducing either their number or height and renaming the project the Cirrus Shell Flat Array. It resubmitted a consent application in January this year. Cirrus claims the revised layout is further from radar at Blackpool Airport and BAe Warton Airport and will reduce the impact on common scoter populations.

The future

Discussions on future rounds of site leases for offshore wind development have been ongoing for some months between the BWEA, DBERR and Crown Estate. As a first step, the DBERR has since May been conducting a screening exercise to identify which areas around Britain's coast should be given priority for strategic environmental assessments (SEAs). These are a pre-requisite before any further licensing can take place. It is rumoured the DBERR will this month outline its plans for taking offshore forward and the geographical areas where future wind development could take place.

The BWEA's Michael Hay warns that it is essential that the process for identifying sites is adequately funded and as thorough as possible to ensure that the type of problems encountered at Triton Knoll do not occur again. "We need more confidence in the system," he says. The BWEA is also pressing for a year's bird surveys to be incorporated into the SEAs. Before applying for consent, developers need at least two years of bird monitoring. "We are talking about how we can reduce the development timetable to get a tighter, more managed consenting system," says Hay.

The BWEA would like to see a rolling program of site awards starting as soon as possible, says Airtricity's Veal, who chairs the association's "future offshore" working group. Ideally, the tendering rounds for sites would start in 2009 for between 4 GW and 5 GW of capacity each year up to 2014. "We believe we could achieve 20 GW of offshore wind by 2020," he says. "That, coupled with 10 GW of onshore wind and a small amount of other renewables, could meet up to 33% of UK electricity by 2020." This would allow the UK to meet its fair share of the EU goal of 20% of energy from renewables, which will require renewables to provide around 34% of electricity across the EU.

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