By Jason Deign in Barcelona

If you are selling offshore wind farm kit to Frank Coenen then do not be surprised if he takes a while getting back to you.

The Belwind chief executive says his company, which is 70% financed by banks through a structured finance arrangement, has to submit all its supplier and contract proposals for approval by investors before it gets given the money to spend on them.

The period between sourcing all materials and suppliers and getting signoff on the proposals—the financial close—can be as long as one and a half years, and even then construction may not start for a few months.

This is a significant challenge for all structured finance-backed offshore projects—unlike those owned by utilities, which can usually fund developments from their balance sheets. And it is hardly the only procurement hurdle Belwind faces.

“We have two major issues,” Coenen says. “Certain goods need a long lead time. A piece of machinery such as a huge transformer needs to be specially built and it is quite difficult to get long-term prices for this.

“We also need steel and it is difficult to get steel prices 12 months in advance. Previously it was not such of a problem but at the moment suppliers do not want to commit that far ahead.”

Luckily Belwind, which in December switched on Belgium’s largest renewable power plant, with 55 turbines in the North Sea Bligh Bank, has been able to find suppliers of turbines, foundations and other offshore wind farm components that will take on the risk of material price hikes.

Limited suppliers

And that despite the fact that there is ostensibly only a limited number of suppliers in the offshore wind energy business.

Niels Møller Jensen, head of technology for offshore wind projects at the energy utility Vattenfall, says that for his company “the biggest challenge when it comes to procurement has been installation vessels because there is a very limited number of suppliers.

“It is now becoming better because of new suppliers and a more stable market. A few years ago it was very much an off market.”

Even so, he adds, the problem of vendor shortages is likely to persist for some time. “When it comes to the UK’s Round 3, wind farms will have to be connected by HDVC (High Voltage Direct Current), and there is limited capacity on the market.” 

However, says Belwind’s Coenen, the notion that specialist offshore equipment providers could be maxed out is a fiction: “The idea is given that there is a shortage of certain goods or whatever. But in the end the market is so big these so-called shortages can be solved.”

Furthermore, Belwind has been able to source 90% of its equipment without going outside of Europe. For the time being, this geographical bias seems driven by quality concerns rather than logistics. “In a structured finance project you need to give comfort to the banks,” Coenen says.

This means having an in-house team of experts that can check every element of the project design and equipment manufacturing process, breathing down the necks of manufacturers’ and engineering, procurement and construction (EPC) contractors’ own quality control teams. 

In-house departments

“You cannot say: ‘Turnkey project? Thank you very much,’ and go on holiday,” says Coenen. “Every EPC contractor has an interest in contingencies and incremental costs. You can’t invest millions in electrical grid equipment from ABB then just close your eyes and hope for the best.” 

Perhaps because of the complexity involved and level of control needed in offshore wind farm procurement, large operators such as RWE and Vattenfall have resorted to creating in-house departments dedicated to purchasing and logistics.

The latter is a buyer’s nightmare in itself. Says Marc Muhlenbach, Europe wind energy advisory analyst at IHS Emerging Energy Research: “One of the key issues that has to be addressed in the industry is transport and logistics. It is a huge cost factor and often gets overlooked.”

High initial costs and complexity are to be expected in any emerging sector; and offshore wind energy “is still so nascent that best practice is far from being reached,” Muhlenbach says. “It is still very much a project-by-project experience.”

In other industries, though, growing knowledge often quickly helps to streamline supply chains and reduce costs. Do not expect that to apply to offshore wind energy, Muhlenbach warns.  

“It is definitely still very expensive and that is not going to change as people get more experience,” he says. “There are some things that can be used to reduce cost, such as having maintenance crews on a vessel at the site.

“On the other hand, there is a formula which applies, which is that the more projects get built, the more projects get built further out to sea where the conditions are unknown. The learning curve will begin anew.”

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Jason Deign: mail@jasondeign.com

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Rikki Stancich: rstancich@gmail.com