uk opportunities in the journey to subsidy free

1/19

UK opportunities in the journey to

‘Subsidy free’ Bruce Valpy

Norwich

2 March 2016

2/19

1. Journey to ‘Subsidy free’

2. UK content – past, present and future

3. Transparency in measuring local content

4. Opportunities for doing business

Contents

Agenda UK opportunities in the journey to ‘Subsidy free’

Selected clients

BVG Associates

Business advisory

• Analysis and forecasting

• Strategic advice

• Business and supply chain development

Technology

• Engineering services

• Due diligence

• Strategy and R&D support

Economics

• Socioeconomics and local benefits

• Technology and project economic modelling

• Policy and local content assessment

© BVG Associates 2016

3/19 © BVG Associates 2016

4/19

Developmentand project

management

Wind turbine supply26%

Balance of plant19%

Installation and commissioning

14%

Operation, maintenance and service

39%

Project other1.6%

1%Turbine

assembly

7%

2%

8%

4%

4%

Subsea export cables2%

1%

7%

8%

1%Installation ports

0.5%

2%

4.5%4%

3%

Operation, maintenance and minor service

20%

7%

12%

Blades

Castings and forgings

Drive train

Tower

Turbine other

Subsea array cables

Substations

Balance of plant

other

Foundations

Installation other

Subsea cable installation

Foundation installation

Turbine installation

OMSother

Major service

Wind farm design0.1%

Surveys0.3%

Source: BVG Associates

2%

1. Journey to ‘Subsidy free’ Going slow is not an option…

.

Cost of Energy Reduction = Offshore Wind Subsidy free by ‘23


5/19

1. Journey to ‘Subsidy free’ What progress needs to be made?

Turbines Foundations Transmission Installation

Large quantities offshore: 130m diameter Improved design & manufacture Mounted on turbines More capable vessels

Prototyped onshore: 164m diameter Extended use of monopiles HVDC improvements Decreased weather sensitivity

Soon to be prototyped (public): 180m diameter Less use of crane vessels

FID in 2025: > 200m diameter

Main per MW benefits

Decreased foundation and installation CAPEX Decreased CAPEX Decreased CAPEX Decreased CAPEX

Decreased OPEX Decreased cost of capital

Increased energy production

Plus longer project life, decreased risk, improved operation, maintenance and service, improvements in contracting & sharing of data

Nothing radical (except the largest rotating machines on earth)


6/19

80

100

120

140

2015 2020 2025 2030

Co

st o

f en

erg

y (£

/MW

h)

Year of first generation


£102

£98

£90

£84

30.7

60.8

61.2

84.2

£30

£27

£21

£16

£4.53

£8.20

£6.26

£6.54

1. Journey to ‘Subsidy free’ Will this just happen?

• Published alongside the CCC’s latest progress

report on decarbonisation and fed in to its

recommendations for the 5th carbon budget

Objective:

• To present recommendations to UK

government about policies to drive down

LCOE from offshore wind in 2020s and give

value to UK energy users

By:

• Quantifying the impact of government policy

drivers on cost of energy and support cost

for UK offshore wind in 2020s

• In a European market context, through robust

industry dialogue

• 1st time been robust analysis of the LCOE impact of

policy

• Key conclusions: 1. Substituting market with huge R&D funds isn’t the answer

2. Clear visibility of short-term plans for min 1GW/yr in UK & long-term intent saves 25% cost of support & increases UK activity

3. Increasing to 3.5GW/yr across EU has such impact on LCOE that hardly costs any more for 35% more output

Needs governments and industry to trust each other


7/19


Project 3% (UK 2%)

Turbine 39% (UK 1%)

Balance of plant 28% (UK 5%)


30% (UK 10%)


Capital expenditure

52% (UK 8%)Operational

expenditure 48%

(UK 36%) Source: BVG Associates

Capital expenditure 83%

(UK 28%)

Operational expenditure 17%

(UK 12%)

2. UK Content, past, present and future Right price for consumers, right for the planet and right economic benefit


0%

20%

40%

60%

80%

100%

TOTEX DEVEX CAPEX OPEX

% U

K c

on

ten

t


• 10 UK wind farms larger than 100MW, completed 2009-2013

Disjointed progress

Generating &

transmission asset

CAPEX

Generating asset

TOTEX

Transmission asset

TOTEX

8/19

Balance of plant

Operation, maintenance

and service

Turbine


Development and project management

Decommissioning

We have the largest market, but…

Confidence and market size are key to how far we get


2. UK Content, past, present and future

Balance of plant

Operation, maintenance

and service

Turbine


Development and project management

Decommissioning

70% UK content – not in current environment 50% UK content – good target for current projects

Nacelle assembly and

main component supply

Increased UK-based

supplier success

UK manufacture of replacement

components and UK SOV operators

Export cable and increased UK-

based foundation supplier success

Source: BVG Associates Source: BVG Associates

9/19

3. Transparency in measuring local content Without it, claims mean little

• Supply chain plan “gateway” into the

CfD auction process

• First introduced for “FiDER” projects

eg. Burbo and Walney extensions

• Three criteria: competition, innovation

and skills

• Overall intent is UK economic benefit

and lower cost of energy,

ie. a more sustainable industry

• Supply chain plans not UK content

beauty contests – about ensuring

that all reasonable steps have been taken to enable

UK supply

• Backed up by strong DECC, BIS and UKTI pressure!

Supply chain plans


• Robust & consistent way to

communicate about UK content

• Built on early work published by E.ON

• Principles used in most 2014 supply

chain plans

• Developed for Offshore Wind

Programme Board with support from

DECC, The Crown Estate and Industry

• Developers committed to reporting on all

projects reaching FID after 1 Jan 2015

• Suppliers winning contracts over £10m on a given wind farm will be

responsible for formal reporting to developers

• RenewableUK will publish annual progress report on UK content

• Proactive suppliers using methodology to help communicate

opportunities for increased UK content

• Methodology includes guidance how to calculate – not onerous

UK Content methodology

10/19

Principles

Keep it simple…



A supplier with order ≥£10m needs to:

• Assess its own UK content

• Pass on requests to do same to each sub-supplier if value ≥£10m or

estimate for each sub-supplier if value <£10m based on:

• Any information provided by the sub-supplier

• Sub-supplier’s address

• Currency in which the payment was made

• Knowledge of sub-supplier’s activities, its supply chain and of

similar companies

11/19

Assessing UK content

Some simple rules to follow



UK content

Project-related purchases:

May be above or below £10m

Capital investments: allocate the depreciation

over the project

Overheads: allocate a fraction of expenditure to

the project

OPEX: undiscounted

lifetime operational spend

Margin: Assume it has the same UK content as the rest of the

spend

Insurance: It’s the UK content

of the insurer’s administration

Revenue from power or assets: not considered but

the cost of the sales activity could

be

• For each type of expenditure, a supplier needs to calculate:

• How much cost to allocate to the project

• What is its local content

• The cost allocation, particularly of capital investments, can make a

significant difference to the total UK content figure

• UK content can rarely be 100%:

• For any steel work, we have no iron ore mines

• For cables, we have no copper ore mines

• For vessels, we have no (economic) capacity to build jack-ups

• We import a proportion of our fuel

• Heavy machinery and tooling could well be imported

• Desk-based services use imported IT equipment or software

• Developers are working hard to get the right answer and expect the

same from their suppliers

12/19

What comes out?

Results



13/19

Environmental

surveysTurbine assembly Array cables

Installation ports and

logistics

Fuel and

consumablesPorts and logistics

Consenting &

development servicesBlades Export cables

Turbine & foundation

installation

Maintenance and

inspectionMarine operations

Site investigations Drive train Transmission Cable installation Offshore logistics Salvage and recycling

Project management Power conversion Substation structures Substation installationVessels and

equipmentProject management

Large fabrications Turbine foundations Installation equipment Operations port

Towers Secondary steelworkInstallation support

services

Communication

systems

Small components Onshore worksInventory

management

Development and

project

management

Turbine supply

Balance of plant

Installation and

commissioning

Operation,

maintenance and

service

Decommissioning

4. Opportunities for doing business Generic perspectives for O&G players

• Project management - companies are already offering skills in managing complex projects offshore

• Array cables - requires similar skills and equipment to oil and gas umbilical manufacture

• Substation structures - typically one-off designs on a similar scale to oil and gas platforms

• Turbine foundations - fabrication skills to produce serially manufactured structures

• Secondary steelwork - more easily accessible market

• Cable installation - offshore wind contractors already transitioned from O&G;

learned that the complexity of offshore wind contracts presents significant new challenges

• Installation equipment - transition already made by many eg. In pile and cable handling equipment and trenching and burial tools

• Installation support services - experience valuable in diving, ROV services, marine consultancy.

• Maintenance and inspection services – experience working offshore on similar issues in more mature sector valuable

Top 9 areas


Based on: Synergies, track

record in offshore wind, appetite

for new entrants, investment

required, LCOE reduction

opportunities & size of

opportunity

14/19

4. Opportunities for doing business Race Bank


Soonest project

Lead developer(s) in italics. Lead operator(s) in bold

Known information shown in black text

BVGA insight shown in grey text

15/19

4. Opportunities for doing business East Anglia 1


Largest local project

16/19

4. Opportunities for doing business Hornsea 1


Largest upcoming project

17/19

4. Opportunities for doing business Triton Knoll


Next project to receive CfD?

18/19

4. Opportunities for doing business Lynn and Inner Dowsing (LID)


Example operating project

19/19

Thank you BVG Associates Ltd

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Purton Road

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SN6 6HY UK

tel +44(0)1793 752 308

[email protected]

@bvgassociates

www.bvgassociates.co.uk

BVG Associates Ltd

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Silversands

Aberdour, Fife

KY3 0TZ UK

tel +44(0)1383 870 014

BVG Associates LLC

Green Garage

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Detroit, MI

48201 USA

tel +1 (313) 462 0673

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