Will the Crown Estate’s ambitious vision for wind farm development be constrained by supply chain bottlenecks?

By Sam Phipps

The Crown Estate’s proposed area extensions for round 1 and 2 offshore wind farms make economic and logistical sense, operators say, but concerns over the supply chain, particularly the cost of raw materials, will continue to vex the market.

By inviting a wide range of applicants, including new entrants who would work in partnership with existing project owners, the Crown Estate is hoping to accelerate the delivery of offshore wind capacity before the larger round 3 projects get under way in a few years. This would be done by expanding the physical reach of wind farms that are already operational, under construction or awaiting consent.

“Where they are still building offshore wind farms, there is a strong case for using some of the infrastructure already in place and extending the sites,” says Nick Medic of the British Wind Energy Association. “Where they have not started construction yet, it also makes sense, economically, to roll out a bigger programme.”

Prospective developers had to register interest by early September, and a detailed application process is now ongoing. Next spring the Crown Estate is expected to announce whether any extensions have been granted. Until then it remains a matter of conjecture as to which operators have applied to do what.

Any extension proposals will have to demonstrate synergies with the original site in terms of construction, operation, improved economics and grid connectivity. The Crown Estate has also pledged to give the utmost environmental consideration throughout.

The Crown Estate’s extension plans are aimed at allaying fears of a lull in the market around 2013, when round 1 will likely be complete but round 3, embryonic.

Out of the 17 round 1 projects originally allocated in 2000, only seven are fully operational and four are under construction. The rest are awaiting consent, bar two, Shell Flats and Cromer, which have been withdrawn because the developers – ScottishPower and Dong Energy, and EDF Energy respectively – felt the planning constraints were too great.

In 2003, 15 leases were handed out to developers in three areas for round 2: the Thames Estuary, Greater Wash and the northwest. The BWEA estimates that between 2009 and 2015 between 0.6GW and 1GW of offshore wind will be installed each year in the UK on the back of Round 2 projects.

Operators support the Crown Estates' thinking. As Julian Mears, spokesperson for UK energy company, Centrica, notes: "Speed of connecting renewables to the grid is the key issue."

Forex, not resource constraint, is the issue

But there are some kinks that need ironing out. When it comes to sourcing raw materials, the forex market can leave a big dent in the funding pot. “Cost is more of an issue than  shortage. Because a lot of materials are priced in currencies other than sterling, a weak sterling rate can increase costs significantly,” says Mears.

In light of this, the Chancellor of the Exchequer, Alistair Darling, announced a temporary doubling of the Renewable Obligation Certificate to around 10p per kWh earlier this year. This has enabled energy providers to recoup costs by raising the rates they will charge for energy fed back to the National Grid.

“The number of suppliers is limited and this is exacerbated by currency fluctuations. [The increased ROC banding proposal] has made a big difference and was the main reason we decided to build Lincs at this point,” adds Mears.

Operators like Centrica, which plans to start work on the £720 million (€803mn, US$1,194mn) wind farm off Skegness in Lincolnshire next year, welcomed the UK Department of Energy and Climate Change’s (DECC) draft National Policy Statements on energy, released earlier this month.

The objective is to streamline the planning process and Parliament will review the results of consultation early next year. “It will help quicken the process but grid connection resolution needs to follow quickly,” cautions Mears.

Supply chain rallying

BWEA’s Medic says that any supply chain bottlenecks are likely to be short-lived. “In terms of the supply chain, yes, there are issues but we expect them to ease in time for round 3. BWEA members who apply for larger sites will be doing so on the assumption that they will pull it off, that it will be viable,” he explains.

Angus Milligan, a broker and analyst at Offshore Ship Brokers in Aberdeen, similarly notes that a current shortage of suitable vessels for the construction and maintenance of wind turbines is likely to be transient. Improvisation and diversification are already playing a part, with North Sea oil and gas contractors active.

“Vessels are being converted, so [platform supply vessels] are being uniquely tailored for the wind energy sector. There are all sorts of developments. The other thing is that the vessels they are building from scratch now are designed to be multi purpose.

“But there are bound to be mistakes on all sides as this evolves. I think we’ll see a haemorrhaging of money for the next few years as it scales up,” adds Milligan.

Angela Ratten of DECC says the Crown Estate extensions would be a useful barometer of market appetite for offshore energy. “We’re content with round 1 and 2 going forward and we’ll see what happens with round 3 when it’s expected to be announced later this year. It will all help with our 2020 target [of meeting 15 percent of energy needs through renewables].

“Once that’s known, then the manufacturing industry can start taking forward the new technology.”

Can all this really be achieved before 2020? “There’s still time,” says Ratten. “How we see it is like North Sea oil and gas in the 1970s – that took a while to get going but it happened.”