OFFSHORE WIND: THE POWER TO PROGRESS Reflections and future insights
SAFER, SMARTER, GREENER
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FOREWORD
We see that cost and financing are the foundations to offshore wind’s growing potential. In recent years, offshore wind’s levelized cost of energy (LCoE) has fallen significantly, particularly within Europe. For example, in 2017 the Hornsea One wind farm agreed to sell electricity at £57.50 (around USD80) per MW – less than half the price of 2015. However, in 2019, mega projects have achieved a new UK record low of £39.65 (USD51.05) per MWh – a 30% price drop on 2017 prices. We have also seen the emergence of zero subsidy auctions for proposed wind farms in the German and Dutch North Sea.
DITLEV ENGEL CEO DNV GL - ENERGY The threat of climate change and the need to meet internationally agreed emissions targets has prompted governments to take major steps towards a lower-carbon energy system. However, we still have a long way to go. The good news is that, after years of impressive progress, offshore wind is ramping up to full commercial maturity and is now becoming a major contributor to global energy production. In our 2019 edition of DNV GL’s Energy Transition Outlook, we forecast that 30 per cent of all global electricity production will come from wind energy by 2050, with 12% from offshore wind and 18% from onshore wind. Today’s current levels shows offshore wind at 0.2% and 4.1% for onshore wind of global electricity production. Offshore wind’s contribution will reach about 40% of total wind production by mid-century. This points to wind becoming a ‘new conventional’ rather than a challenger technology. But this shouldn’t come as a surprise. The sector has seen major and profound change since offshore wind was first envisaged in 1980. Research and development projects, such as the UK’s first offshore wind farm, Blyth, shouldn’t be taken for granted. These projects have demonstrated the capability of offshore wind technology.
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https://www.awea.org/policy-and-issues/u-s-offshore-wind
There are two main drivers for this unparalleled cost reduction. Firstly, technological advancements, such as increased turbine sizes, have enabled wind farms to generate greater power with fewer turbines. Vindeby, the world’s first offshore wind farm used 450 kW turbines. Today, 8 MW turbines are in operation and 9.5-10 MW turbines have been released by manufacturers. A 12 MW turbine has been tested during 2019 and will begin commercial operations in the early 2020's, demonstrating that turbines will continue to reach new heights. The second driver is political will. Governments have switched offshore wind support schemes to project auctions that feature more competition among bidders. As more projects are built, the shared experience in the industry has enabled cost-saving optimization of construction, supply chains and grid networks. This kind of economy of scale is likely to continue as the industry grows. Important learnings from the European experience, innovations in bigger turbines and LCoE cost reductions, most notably in core European markets but also in new markets in the U.S., China and Taiwan, will help grow the offshore wind industry in North America and Asia-Pacific more quickly than it was developed in Europe. And these are potentially enormous markets. The U.S. alone has an offshore wind power potential of 2,000 GW, double the nation’s current electricity use1.
FOREWORD 03
Looking ahead, offshore wind will be further boosted by the emergence of floating turbines which will soon move beyond the demonstration stage. Deployed in deeper water, floating turbines will exploit a much wider range of sites, particularly within the U.S. West Coast, France and Asian nations, such as Japan. The ‘established’ European market still offers opportunities to expand knowledge and advance the entire industry. For example, the North Seas Countries’ Offshore Grid Initiative (NSCOGI) will push current interconnection network engineering know-how. This and other advancements will help to increase the acceptance of offshore wind technology for years to come. Operating projects in promising markets, such as the 252 MW Liuheng (Guodian Zhoushan Putuo) offshore wind farm in China and the 30 MW Block Island wind farm in Rhode Island, USA, and additional planned projects in the pipeline, will help to expand existing regional specific know-how. World-class wind resources exist throughout Asia and on the U.S. East and West Coasts which demonstrate the enormous potential of the industry to expand. After nearly three decades of success, the industry has much to be proud of and much to look forward to. But new markets, financing structures, technologies and bigger turbines mean that the story of offshore wind is entering a new chapter, a truly global and integrated chapter. Now is the right time to pause and ask the question: what have we learnt and how can we push the boundaries of progression?
After years of impressive progress, offshore wind is ramping up to full commercial maturity and is now becoming a major contributor to global energy production
The following pages reflect the opinions and experiences of our experts from around the globe – many of whom have been involved in offshore wind since the early days. Each article outlines the successes, challenges and some of the lessons learned. With ’Offshore wind: The power to progress’ we aim to share our knowledge to help further the adoption and development of wind energy, and ultimately help accelerate the energy transition – a cause I feel very passionate about. I hope you find the articles interesting and useful. With such promising and vast potential, I look forward to what the offshore wind sector will bring in the coming years.
Ditlev Engel
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CONTENTS 05
DNV GL ON: Politics .......................................................................................... 06 Future turbine technology ......................................................... 08 Emergence of floating wind ...................................................... 10 Supply chains in emerging markets ......................................... 12 Transnational grid planning ...................................................... 14 Finance in a zero-subsidy world ............................................... 16 Smarter operations .................................................................... 18 European developers ................................................................ 20 Challenges of extreme conditions............................................ 22 De-risking offshore projects ...................................................... 24 U.S. developments ...................................................................... 26 The future ..................................................................................... 28
06 OFFSHORE WIND: THE POWER TO PROGRESS
Peter Brun on politics:
POLICY (STILL) MATTERS! The energy sector is highly regulated, and for good reason. Regulations are key to providing stable, affordable and sustainable energy in every economy and society. Therefore, energy belongs in the ‘vital infrastructure’ category. It is a primary concern of all governments as the foundation of modern society and as a key pillar of competitiveness. This remains true, even with the major liberalization of the energy markets in many countries and regions across the world in the last 20 years. However, apart from ensuring the security of supply and more competition, governments in the next decade will need to help secure the transition towards more green and sustainable energy systems. This must be a key political priority for the next decade.
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or large energy technologies, the investments needed are highly capital intensive, and it can take years to recoup those investments. Innovation and new technologies also demand capital investment that cannot be supported by market conditions alone. Therefore, governments still play a major role as regulator and facilitator of stable energy systems and the driver of innovation in new energy technologies. Fifty years ago, governments secured these investments and innovations as part of societal infrastructure. Today, however, a government’s major role is to secure stable regulatory frameworks that allow for more competition, new generation capacity and not least, greener technologies. Lessons from offshore wind For offshore wind, a great deal has happened in the last ten years. Installed capacity has passed 20 GW. More importantly, the technology is now more cost competitive and is finally moving to new parts of the world. In North America and Asia, for example, there are ambitious plans for very large-scale offshore wind generation capacity. A major factor in the acceleration of these developments is the radical cost reduction of offshore wind energy, particularly in the last five years. In the UK, offshore wind generates power at about £39.65 (USD51.05/MWh) per MWh, 30% less than the price two years ago which was £57.50 (USD73.97). In Germany and the Netherlands, we have even seen zero-subsidy winning bids in government tenders. And mainstream cost prices are continuing their downward curve in both Europe and emerging markets. Governments and policy have played a major role in enabling this positive development by: Facilitating stable, transparent regulatory frameworks (set by governments) Reducing project risk by securing wind resource data, geotechnical studies and even grid connections and transmission to the projects
Incubating new technology development (with gradually reduced subsidies and offtake guarantees to the power grid) Followed by introducing open auctions which allow for more transparent international price competition from bidders/investors.
This has been the main recipe for successful development of the offshore wind sector in Northwest Europe. Experience has also taught us what constitutes “poison” for the wind industry. Firstly, the use of retroactive regulatory changes, unfairly undermining the basic business-case for investors. Secondly, too rigid and slow-moving consenting procedures. Thirdly, overly rigid local content requirements for establishing local suppliers to the offshore wind industry. Fourthly, limitations in the grid-offtake of power, and finally, insufficient power purchase agreement to balance country and project risks. Some countries have clearly learnt from industry experience to ensure successful development of their offshore wind projects. The good news is that more and more countries understand their past mistakes and are adapting their approaches accordingly. These learnings provide insight into emerging markets where soil conditions and natural weather systems, such as cyclones, provide very different challenges to those encountered within European waters. It further reveals that such barriers are only policy barriers which can be changed very quickly – provided local support and agreement is there. As a result, we don’t need to wait for cost-competitive technology any longer; it is already available. Offshore wind is on a clear journey to become one of the most cost-efficient centralized power technologies. Combined with other low-cost renewables technologies and new storage systems, offshore wind can become the backbone of many modern and sustainable energy systems in the world over the coming decades. But to realize this we’ll need visionary and forward-thinking governments to help with effective energy regulation to accelerate this crucial energy transition.
POLITICS 07
A government's major role is to secure stable regulatory frameworks that allow for more competition, new generation capacity and not least, greener technologies
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Wind turbines have gone into mass production, perhaps not on an automotive scale, but enough that supply chain numbers are helping to drive down costs
FUTURE TURBINE TECHNOLOGY 09
Steve Gilkes on future turbine technology:
WIND TURBINE DESIGN: IS THIS MATURITY? For many years, we as an industry designed turbines to suit the wind conditions at a location. We varied rotor sizes and power ratings to make the best use of the structure and create Type Class 1, 2, 3, 4 variations on a standard platform. The aim was to ensure that each turbine was an optimal design for its application, because more material equalled more cost.
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ecently, there has been a significant reduction in wind turbine costs. While there have been technical improvements, most notably in control system design, the reduction is principally due to production volumes. Wind turbines have gone into mass production, perhaps not on an automotive scale, but enough that supply chain numbers are helping to drive down costs. The saving obtained by buying four times the components beats having an optimal model for four applications. If you want a truck to cover 100,000 or a million kilometres per year or carry 20 or 30 tonnes per load, you don’t have to buy a specialist vehicle for each use. You just simply operate the vehicle for a shorter or longer time. Now we are seeing the same principles applied to wind turbines. Nacelle platforms are being designed with features which require more material, such as multiple attachment points to use different rotors. This adds extra mass but saves costs through the economy of scale. The variable to explore is the expected life and operating cost. Selling life; zero-subsidy and net present value The other recent shift is the move away from considering a wind turbine as an asset with a fixed life to assessing the turbine life based on its durability and the environment in which it operates. At first, this would only be considered once the turbines had passed the mid-point of its operation, when relative gains in residual value could be considerable. The phrase “residual value” is also an important change. Now the income to the wind farm is not a function of how much it costs to generate electricity, i.e. levelized cost of energy (LCoE). Instead, it is a question of what the market will pay and how much return can be made.
Investors are now asking “How long will this turbine last?” at the beginning of the project, even before the final investment decision has been made, and changes to later-life maintenance are factored into the value. With the concept of net present value comes a more dynamic view of the operational life. Soon we will answer the question “How can I optimize the remaining life for the maximum return?”. There are ways to operate a turbine that could extend its life. For example, a turbine could be more optimal in a low wind speed site than on the site for which it was originally designed because the longer life leads to an increased energy yield. Of course, this all feeds back to design. We need to design turbines with a view to a robust and cost-effective life expectancy, accounting for the probability of a total return on investment. It is good to have new challenges.
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Magnus Ebbesen on emergence of floating wind:
FLOATING OFFSHORE WIND EMERGES ON THE HORIZON The myth that floating offshore wind doesn’t perform as well as bottom-fixed is on its way to being busted. Floating offshore wind has advanced rapidly in recent years. Operating since Autumn 2017, Hywind Scotland has shown promising results with a capacity factor well over 50%. This indicates floating motions do not have a significant impact on gross production or reliability. With WindFloat Atlantic coming online in 2019 and debt financing from the European Investment Bank, it shows that banks are becoming comfortable with a secure and steady operational income from floating wind.
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espite this, challenges remain – most notably cost. The reason for this is two-fold. Firstly, risk: still viewed as relatively new, floating offshore wind carries a higher perception of risk. Involving many new methods and therefore, less experienced contractors, there is naturally more caution, leading to higher contract prices or more risk pushed onto the developer. Secondly, components are generally more expensive. The floater itself is a particularly high capital expenditure item, with the tower, anchors, mooring lines and dynamic cables also incurring significant costs.
And what about costs? In general, they will go down naturally as experience is gained and supply chain development continues. For aspects not yet fully proven, like using high-voltage dynamic cables, it’s a matter of investing in properly de-risking and qualifying them before or during project design. Once completed on the first project, careful performance assessment will ensure the experience can be used for future projects. It is also important that early projects document their operations properly and, ideally, share their findings to benefit the entire industry.
Further to the issue of cost is the overall confidence in the industry, with aspects that are still not fully proven. For example, high-voltage dynamic cables have not yet been used on floating wind projects and limited experience exists in the oil and gas industry. Additionally, not enough is known about the effect of major maintenance on production. Tension leg platforms and floating substations have yet to be demonstrated in full-scale projects. Shared anchoring may reduce costs but is a novel technology that will need qualification.
It takes time Floating wind will be an important component in the offshore wind industry’s future. In some markets – such as Spain, Japan, Norway, West Coast of the U.S. and island communities – there is limited shallow waters and so floating wind is almost the only solution. In other markets, floating wind will be used more once we run out of sites that can accommodate bottom-fixed wind turbines. We also forecast that in 2040, the price for floating wind will be so low that a site with 0.5 m/s higher average wind speed is enough to counteract the increased capital expenditure of floating wind.
Preparing for the future So how can we move the industry forward with large-scale floating wind projects? To a large degree, it’s a matter of continuing to reduce risks and make projects more commercially attractive. This can be done by ensuring that the development team and contractors have the right experience, conducting proper site investigations and measurement campaigns, designing according to acknowledged standards and verifying or certifying towards these standards. We also see that full-service EPC (Engineering, Procurement and Construction) contracts are becoming more common which is demonstrating improved confidence from the contractors.
Nonetheless, there is one key factor involved in taking floating offshore wind mainstream – time. It will take time to better understand the risks and give investors the assurances they need. And it will take time to scale up production of components that, today, are set at a higher price. That said, it wasn’t long ago that bottom-fixed offshore wind was viewed as ‘too risky’ and ‘too costly’. That opinion changed quickly! So perhaps the time needed to prove the viability of floating wind might not be as long as one might think.
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Banks are becoming comfortable with a secure and steady operational income from floating wind
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Per Enggaard Haahr on supply chains in emerging markets:
ESTABLISHING SUPPLY CHAINS IN EMERGING MARKETS The most widely used definition of sustainable development is Brundtland’s 1987 definition: “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This definition of sustainability is highly relevant in specifying the relationship between developers and supply chains in emerging markets.
n other words, supply chain development in emerging markets relies on long-term economic, social and cultural aspects. In our view, this is the coming together of all three aspects defining the foundation of successful supply chain development. Moving towards emerging markets is a challenge that also brings plenty of opportunities for global collaboration. Different countries will contribute in various ways and their cultural diversity is important when setting local content targets.
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However, in the current financial climate, developers are increasingly expected to deliver successful offshore renewables projects on fast track schedules, while also lowering the cost of energy. Project risks must be considered throughout the lifecycle, from tender to construction and operation, remembering that risks increase greatly in supply chains which have little or no experience. A spirit of partnership The question remains: How can the wind industry enter a new market and develop the local supply chain when skill shortages exist and still decrease the cost of energy? The answer lies in devising ‘win-win’ solutions in a spirit of partnership. We are responsible for harmonizing our aims and developing cooperation and trust between all parties, to achieve the common goal of delivering projects on time, within budget and avoiding risks. This way, the whole industry wins. This is the way ahead – a “team” working with mutual objectives can complete a project within budget and on time. Partnerships between developers and local supply chains benefit from more open relationships based on trust and cooperation, changing attitudes and altering the way project team members deal with each other. Working together through long-term relationships to improve sustained performance, teamwork, eliminate waste and share the gains.
In the UK, the offshore renewables industry has learnt from the oil and gas industry’s Cost Reduction Initiative for the New Era (CRINE), which reduced costs on gas field developments by 40%. In the last 10 years, offshore wind has made huge progress in cutting construction, operation and maintenance costs. Setting realistic local content targets, combined with continuous training and improved procedures to address skill shortages, is the only way to deliver continuous improvements and share success. Flourishing projects There is no doubt that the industry needs to educate supply chains to help them enter emerging markets and differentiate between best value and lowest price. One example of a successful, developing supply chain with flourishing projects is seen in Taiwan. Developers are partnering local supply chains with well-known European supply chains to promote knowledge transfer and sustainable long-term collaboration. DNV GL is also engaged with local companies and the government to promote offshore renewables knowledge transfer through training and joint industry projects (JIPs). When developing any local supply chain in emerging markets, standardization is another issue to consider. For the industry to attain global success, it is important to have a standardized approach and tailor it to local specific requirements. If a supply chain adopts very localized conditions, it may not be sustainable in the long-term as it will not match recognized global industry standards. In conclusion, what Sir Michael Latham said over two decades ago in his UK Constructing the Team report is still valid today for developing supply chains in emerging markets: “above all it needs teamwork”. Crosscollaboration between mature and emerging markets is key for the success of sustainable supply chain development.
SUPPLY CHAINS IN EMERGING MARKETS 13
Moving towards emerging markets is a challenge that also brings plenty of opportunities for global collaboration
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With more fluctuating elements connected to the grid system, achieving and maintaining reliable operation under new conditions is paramount
TRANSNATIONAL GRID PLANNING 15
Gunnar Heymann on transnational grid planning:
TRANSNATIONAL OFFSHORE GRID DEVELOPMENT TO ACCELERATE THE ENERGY TRANSITION The past ten years has seen over 20 GW of offshore wind capacity connected to grids worldwide. In the next ten years, we will see around another 130 GW installed. The lessons learnt from past offshore wind projects – from standardized products to connection approaches – will help developers and investors address new challenges when moving further offshore and building truly transnational grids. From AC to HVDC A staged development emerged naturally in offshore wind, with phase 1 (nearshore: 30-40 km) and phase 2 (far-shore: 50-70 km) both based on AC grid technology. However, longer distances and larger clusters of wind farms require high-voltage, direct current (HVDC) connections, as in the German North Sea. The future phase 3 will feature a set of 10 to 15 GW North Sea hubs, combining different energy markets for a total of 150 GW. The first pre-feasibility studies have already been performed. And with projects and knowledge throughout the UK, Germany, Denmark and the Netherlands, Europe is clearly beyond the pilot stage of offshore wind development. Significantly extending offshore generated power can impact transmission systems. Substantial power flows to load centres will require grid extensions and reinforcements for long-distance transport. Given a strong transmission connection point, distributed connections might be the most cost optimal solution. The further away load centres are, the greater the transmission of offshore generated power required. Cooperative investments in transmission infrastructure Europe has led offshore wind development since the technology’s inception. A key lesson is to involve all stakeholders to ensure successful grid planning. Europe has established the comprehensive Ten-Year Network Development Planning (TYNDP) concept by ENTSO-E and ACER, which ensures the future national/ regional energy balance between supply and demand. With more fluctuating elements connected to the grid system, achieving and maintaining reliable operation under new conditions is paramount and combined offshore and onshore grid plans have been prepared to address this. Standardization has enabled offshore substations to minimize costs as transmission system operators become responsible for establishing appropriate connection schemes. The first offshore wind farms had 33/66 kV
innerpark cabling connected to a 150 kV offshore substation, delivering energy directly to a 150/400 kV onshore transformer station. Newer solutions are based on 66 kV innerpark cabling delivered to a standardized 700 MW AC offshore substation with a 220 kV AC export cable. Clearly, additional countermeasures including flexibility options, such as sector coupling, demand-side management and electrification, are needed to avoid a negative socio-economic outcome. With offshore wind taking up to 20% of system peak load, the same capacity must be established as flexibility options (power-to-gas, PV battery storage, large-scale batteries, demand-side management). This can only be achieved in a cooperative approach, targeting optimized grid connections to smoothly integrate offshore wind. Energy islands: the future of North Sea HVDC grid Based on DNV GL’s projections about the energy transition to 2050, new utility business models are also required. For example, creating a North Sea HVDC grid to connect the more than 100 GW of offshore wind, and allowing energy to cross national borders and connect different power markets. But who absorbs the investment costs? What happens in failure and emergency situations? How are potential risks shared? Through our participation in PROMOTioN, a European project that prepares future DC technology, it is becoming clear that a single market alone might not be able to establish the required innovation. These questions can only be answered by new European and national regulations. In addition, technological challenges still exist for certain essential HVDC components. Only by creating a flexible and manageable offshore DC grid with large-scale consumption and generation capability can we ensure a reliable energy supply to regions with more than 100 million people across many neighbouring countries.
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Simon Cox on finance in a zero-subsidy world:
HOW DO YOU FINANCE PROJECTS IN A ZERO-SUBSIDY WORLD? Offshore wind has grown massively in recent years, driving rapid development in technology and supply chain competition. As a result, the industry has delivered spectacular cost savings with the levelized cost of energy (LCoE) for offshore wind halving in the last four years1. As costs have fallen, governments have looked to reduce subsidies, leading to the first auctions won by “zero-subsidy bids”, where wind farms bid to sell their electricity at the wholesale price. More than 2.5 GW of zero-subsidy capacity has now been bid into European offshore markets.
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istorically, offshore wind has relied on subsidies to ensure secure revenue streams that attract investment. The rise of subsidy-free bids removes that security and exposes the industry to the full variability and merchant risk of the open market. To continue growing, offshore wind needs to answer the question: How do we attract finance in a zero-subsidy world? Bankability to mitigate risk With the first zero-subsidy project (Hollandse Kust Zuid in the Netherlands) due to be built by 2022, this is very much an open question. Probably the most common solution will be the (corporate) power purchase agreement (PPAs). PPAs are already familiar in the industry. Yet, in a zero-subsidy world, the PPA must evolve to provide the bankability necessary for investor confidence in project finance. However, a consensus on future power price evolution is required to set the level of a PPA in the first place. Without subsidies, ideally a PPA will run for the project’s lifetime. What’s more, current low wholesale prices and the long-term impact of the low marginal cost of renewables will increase pressure on PPA pricing levels. Current PPAs are typically quite short to medium-term arrangements, lasting perhaps anywhere from a couple of years to 15 years. Without subsidies, we expect PPAs will need to run for the project’s lifetime – 25-30 years or more. Forecasting wholesale power prices is a complicated business and depends on a huge number of influencing factors. Today’s indexed PPAs may be very good instruments in these volatile and uncertain environments. Yet future market dynamics (e.g. the advent of new technologies, the impact of government policies, trends in demand for energy, etc) will likely be correlated with the renewable energy production generated. As weather risks are correlated across the system, individual renewable projects in the future will not be regarded as purely price following. Therefore, the dynamics need to be included in a smarter way, whilst taking into consideration profile
Source: BloombergNEF
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factor (e.g. the price difference between average market price and asset capture price) and imbalance risk. Therefore, any long-term contracts, like PPAs need more fundamental market analysis. Negotiating such long-term agreements will be more complex and require more effort and expertise than developers and buyers are used to deploying. However, as the PPA model matures, we can expect to see today’s case-by-case discussions replaced by more standardized terms. Creating the right conditions Even with the spectacular cost reduction, zero-subsidy projects won’t be a universal phenomenon – at least not yet. They can only be viable where there are good wind resources and where projects can be developed, built and operated cheaply. The success of early subsidy-free projects will depend on favourable market conditions, such as government-funded development of sites and transmission structure, as is the case in the Netherlands. A strong, mature local supply chain is also critical, and the industry and governments must continue to invest in building these up. Competition will also play a key role by encouraging the innovation and new technologies that enable further cost reductions. With offshore wind growing around the world, different regions will move towards low- and zero-subsidy projects at different rates, based on the above factors and local wind conditions. It is natural that investors will favour those regions that still offer subsidies to minimize their risk. To maintain growth in mature zero-subsidy markets, the regional offshore wind industry must do all it can to reassure financiers that they can still guarantee a good return on investment without subsidies. That means ensuring the transition to zero-subsidy goes at a pace the finance world is comfortable with and that mature, fit-for-purpose PPAs are in place.
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To continue growing, offshore wind needs to answer the question: how do we attract finance in a zero-subsidy world?
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These early years have definitely shown that the industry can and is learning
SMARTER OPERATIONS 19
Fernando Sevilla Montoya on smarter operations:
MAXIMIZING PERFORMANCE AND COST REDUCTIONS The last few years has seen dramatic changes in how offshore wind farms operate, significant cost reductions and improvements in project availability. In 2010, offshore wind projects were expected to have significantly lower availability than those onshore, largely due to project accessibility and harsher environments.
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ack then, project operators relied on crew transfer vessels for transporting technicians to turbines and could be reluctant to include helicopters in their access strategies. Operational inexperience was also apparent in budgets, with most operators taking a conservative approach to avoid negative surprises within the project lifetime. Additionally, project owners relied on original equipment manufacturers (OEMs) to run their turbines, only considering taking over operation themselves as an alternative future plan if the OEM wouldn’t fullfil expectations. Today, European operational projects have reached an average lifetime of seven years, with over 50% surpassing the OEMs’ typical five-year warranty period. These early years have definitely shown that the industry can and is learning. So, what exactly has changed? Access strategies Whilst first-generation offshore wind projects were built close to shore, recent developments are located further out in deeper waters, with longer transit times and more onerous climate conditions. These conditions forced operators to explore other transportation methods for getting technicians to sites. One of these options has been the use of helicopters which have significantly reduced transit times. Helicopters are relatively insensitive to wave conditions and are suitable for more frequent, short duration turbine repairs. For projects even further away, Service Operation Vessels (SOVs) were developed. These large, purpose-built vessels have almost all the facilities needed for servicing a project. They are equipped with heave compensation gangways which significantly improve safe turbine access and are able to stay on site enabling short transit times; having technicians located next to the turbines is a major benefit. The first SOVs reached the European market in 2015. Now, over ten vessels are operating with more being built and chartered.
Technology developments and synergies SOVs have performed better than expected. Projects have started to show turbine annual availabilities of above 98%, and vessel utilization demonstrates that one SOV can operate projects of 150 or more turbines. For these reasons, SOVs are now being shared, splitting and reducing their operational costs. Furthermore, new vessel technology, such as the Surface Effect Ship (SES), is emerging. SESs could allow short transit times and high accessibility levels at a relatively low cost compared to an SOV-based strategy. Drone inspections have also reduced inspection times and operational costs. Lessons learnt, competition and self-performance As some projects have started to take over operations from OEMs, turbine availability improvements of 1-2% are being seen. This has led in some cases to shorter OEM service contracts. A combination of factors has led to less conservative, more competitive operational budgets. These include better know-how, more competitive service markets, development of operational hubs, synergies between projects and a more developed supply chain. In some cases, technical operational costs (e.g. cost of labour, logistics and parts) have fallen by around 20% due to these factors. Also, due to competition and better understanding of risks, OEMs have started to offer higher availability warranties; leading to a shift from typical 95%-time-based availability warranties to up to 97%-production-based availability warranties. New turbine generation The development of larger turbines means fewer are required for a project. Whilst larger turbines might need more servicing time, the facilities and offshore logistics are likely to be similar for a bigger project. Larger turbines produce more energy than older models and are showing significant reliability improvements. This, together with all the improvements mentioned above, has led to a steep decrease in the cost per MWh of offshore wind projects.
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Peter Frohböse on European developers:
EUROPEAN DEVELOPERS GO GLOBAL As offshore wind energy costs have fallen, more developers, utilities, suppliers and investors are assessing emerging markets with a view to expanding into new regions. But what opportunities exist for European developers?
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ffering big potential, the U.S. is following an ambitious plan to build an offshore wind market and local supply chain. Although the market is less mature than in Europe, the connection and interaction with the European supply chain is more relevant. Therefore, the U.S. may see faster cost reduction than Asia, if policies are regulated in a way that allows similar technical and commercial solutions to those in the EU. The Far East provides a diverse picture. China is the ‘pure megawatt leader’, with ambitious growth plans defined and started quickly via local supply chain support. Taiwan has enjoyed lots of hype from European players owing to its open market outlook on the international supply chain. Finally, Japan has established plans to use offshore wind despite high costs and the impracticality of fixed offshore wind in many areas – floating offshore wind technology is crucial to Japan’s growth. All Asian markets are very young and/or driven by strong political ambitions, so full cost reduction is unlikely to be realized. Role of the supply chain By exploiting economies of scale and achieving operational cost advantages, developers and the supply chain have cut offshore wind costs dramatically. The more megawatts installed, the lower the levelized cost of energy (LCoE). However, cost reduction pressure by governments means these savings have not been fully realized across the entire supply chain. But why are developers exploring opportunities in emerging markets instead of new locations in Europe? Reasons include: Limited sea space suitable for offshore wind and increasingly unattractive environmental conditions, such as water depth and distance to shore Demand for electricity is limited and may plateau sooner rather than later Public expenditure on offshore wind support schemes will not be extended – all countries now use public auctions, exposing cost reduction for all. The role of EU countries The European model is a balance between: Countries competing to secure supply chain pipelines while monitoring renewable energy subsidy cost reductions Allowing the electricity wholesale market to transition from conventional to renewable energy sources.
Emerging markets Emerging markets must provide a commercial and regulatory framework that attracts mature supply chain players from the European market. One proposal is to offer a higher megawatt hour price but relate the price to the country’s environmental and human-made conditions. Offering sites with preferable soil conditions might mean less feed-in per MWh. More strict grid compliance rules mean this should be considered further. The dominant question remains: What is the right incentive to pull players into new countries? Finding a win-win solution This question can only be answered by understanding the differences and risks connected to new markets. Site conditions play a major role as they define the capex and opex which set the business case. But a hidden success factor relates to each market’s political and technical requirements. Market success will be judged by creating a set of requirements that are comparable with mature markets, without adding barriers to the supply chain and industry players moving into new regions. The ideas of leverage (point of balance) and direction of movement (tilt) for supply are illustrated below, together with the hidden barriers (wedges) driven by site and commercial conditions (weights). Adding competition to each market with more attractive conditions will become a win-win as it will lead to a lower cost of energy. Having one global, uniform market where economies of scale can be achieved requires technical and regulatory considerations to be harmonized. Only a minimal barrier in each country’s cultural and historical regulations should be enforced, ensuring the future continues to look bright for offshore wind, particularly when competing in the global energy industry.
EUROPEAN DEVELOPERS 21
Emerging markets must provide a commercial and regulatory framework that attracts mature supply chain players from the European market
European mature market
World emerging market Supply attractiveness
Price/MWh Site conditi ons
SUPPLY CHAIN
ers Technical barri lations) (standards regu
Polit entrance ba ical rriers
World economies, alternative investments, electricity price, steel price, etc.
Price/MWh Site conditi ons
22 OFFSHORE WIND: THE POWER TO PROGRESS
Lars Klett on challenges of extreme conditions
TACKLING EXTREMES FOR EMERGING MARKETS Offshore wind’s massive technical and commercial growth in recent years has centred mainly on Northern Europe. But with the technology going increasingly global, the offshore wind industry is facing extreme conditions that it has never had to consider before.
Offshore in cyclone and earthquake zones As offshore wind becomes more common in various parts of North America and Asia Pacific, developers must take into account the potential impact of earthquakes and tropical cyclones (also known as typhoons or hurricanes depending on location). What does it take to build an offshore wind farm in a site prone to such natural disasters?
Secondly, offshore is a very different environment to onshore during an extreme event – and that isn’t reflected in current regulations. Cyclone windspeeds are considerably higher offshore, regularly exceeding those specified in local building codes. Meanwhile, the interaction between sediment and seawater during an undersea earthquake can lead to soil liquification and it isn’t clear what impact that has on a turbine’s foundations.
Of course, where natural disasters are common, there is a great deal of expertise in and regulation around designing and constructing buildings to withstand them. But offshore wind farms are unlike other major construction projects in many ways.
In short, there is a great deal of uncertainty on what impact extreme events will have on offshore wind farms and how we should design and build wind farms in areas where such events are likely. The industry is making steps forward. The (International Electrotechnical Commission) IEC has introduced a Typhoon Class (T Class) specification into its standard for wind turbines. However, while this is useful for evaluating an individual turbine’s ability to withstand extreme winds, it doesn’t provide any guidance at a project level. Currently, each project must address the uncertainties and find solutions on a case-by-case basis. And that adds further costs to each project.
For a start, local building codes are quite rightly usually focused on the safety of people inside and around the building. But with no people in and around offshore wind farms, many of these regulations are not relevant. Applying them directly would cause exorbitant costs, making offshore wind prohibitively expensive. Unique challenges bring unknowns For offshore wind in extreme weather conditions, we need to look at a different balance of safety and cost. Safety of investment becomes the critical factor. This is particularly important as offshore wind is increasingly seen as critical infrastructure and expected to deliver a major contribution to a reliable energy supply that can be recovered as soon as possible after a natural disaster. The questions we need to address are: what must a wind farm be able to withstand and at what point does prevention become more costly than failure? While existing earthquake- or cyclone-zone construction expertise can provide some guidance, there are other reasons why it can’t be simply transferred. Firstly, with its tall tower and massive machine at the top, a wind turbine is a more dynamic and flexible structure than standard buildings.
Sharing expertise to reduce uncertainty In the latter part of 2019, DNV GL brought together a consortium of industry leaders to address this issue. The Alleviating Cyclone and Earthquake Challenges for Wind Farms (ACE) joint industry project aims to define an agreed safety level for wind farms in extreme event zones that will provide a realistic expectation of reliability of supply at a sensible cost. To do that, it will condense and share existing knowledge from across the wind industry and beyond with the hope of creating a recommended practice that can be universally applied. Such a commonly accepted guideline would go a long way to supporting the further growth of offshore wind in new markets around the world.
CHALLENGES OF EXTREME CONDITIONS 23
With the technology going increasingly global, the offshore wind industry is facing extreme conditions that it has never had to consider before
08 OFFSHORE WIND: THE 24 the power POWER to TO progress PROGRESS
Some developers are looking at ways to reduce risk in the earliest stages of a project by calling on the expertise of certification bodies before project certification starts
DE-RISKING OFFSHORE PROJECTS 25
David Maloney on de-risking offshore projects
PRE-CERTIFICATION: ADDRESSING RISK EARLIER Project certification is a well-accepted, and in some markets, mandatory part of offshore wind farm development. By verifying that a project is being designed, built and operated according to accepted industry standards, certification ensures reliable quality, stable operation and proper risk management. This brings confidence for all stakeholders, helping the project to secure funding and regulatory go-ahead.
H
owever, the first key milestones for project certification come after a considerable amount of work on the project has already been carried out. For example, lead times, manufacturing availability and tax credits may encourage production of some components to start while the main project is still in the design stage – which introduces the potential for integration problems later. Earlier action, simpler solutions This can be a bigger issue in emerging markets, where less experience across the whole supply chain leads to a more protracted development process that can take many years. Consequently, some developers are looking at ways to reduce risk in the earliest stages of a project by calling on the expertise of certification bodies before project certification starts. Pre-certification (or in North America pre-Certified Verification Agent (pre-CVA)) is not simply a case of checking a project is on the right track to be certified later. Rather, it describes a wide-ranging set of activities to review and validate data collected and decisions made in the earlier stages of a project to assess and address risks. Doing so early in the project allows potential problems to be solved more quickly, easily and cheaply. But the project does need to have reached a certain level of maturity for such activities to deliver meaningful results. So typically, pre-certification activities take place during the concept design and site investigation stages. For example, in the scenario above, where a developer wants to start manufacturing certain components early, either due to long lead-times or to take advantage of manufacturing windows or tax credits, risks can be considerably reduced by having enough of the project design reviewed at this stage. This provides reassurance that these early-manufacture components will interface with the rest of the project as it develops.
Reducing delays in design and fabrication In markets that lack industry standards, establishing a Codes and Standards hierarchy is crucial. While the hierarchy is validated during project certification, this may not be done until the final project design is submitted. Finding out at this stage that the Codes and Standards hierarchy is not acceptable is a huge blow, potentially incurring significant delays and costs to rectify. Instead, creating and reviewing the hierarchy at the start of the concept design phase allows any issues to be identified and fixed before they propagate through the project design, so that developers can proceed more quickly and with confidence. Similarly, accurate knowledge of the environment at a prospective site, such as soil profiles, water depths, and wind, wave and current conditions, is essential for designing offshore wind farm structures. Some characteristics like geotechnical conditions can take a very long time to investigate. By reviewing these investigations in real-time, a certifier can ensure the information gathered is factually sound and interpreted in a way that is consistent with local codes. This is particularly valuable where developers provide site conditions as part of the specifications for subcontractors to create designs. Pre-certification reviews of that information can facilitate negotiations and assure the designer that the factual data is appropriate for design use. Helping developers succeed The potential scope of pre-certification activities is vast and depends greatly on the site-specific needs of the project. But by addressing issues with a very defined scope, pre-certification offers a cost- and time-effective way for developers to front-load any issue they feel may present a possible risk to their project’s success.
26 OFFSHORE WIND: THE POWER TO PROGRESS
Alana Duerr on U.S. developments
DEVELOPMENTS IN THE U.S. WIND INDUSTRY The U.S. offshore wind industry is at a tipping point. While there is currently just 30 MW of offshore wind installed around the U.S. coastline, the pipeline is predicted to be 25 GW by 2035. The market outlook is also changing rapidly. At the end of 2017, only 400 MW of offshore wind projects had announced a power offtake mechanism. By the end of 2019, we expect that figure to be close to 7 GW.
A growing market So, what is driving this change? One key element has been the efforts of a few individual states to stimulate in-state production of renewable energy. For example, many states in the Northeast either don’t have space for wind or solar facilities or only have space far from the load centres. This has led to a huge push toward offshore wind in Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Maryland and Virginia. The phase out of federal investment tax credits has also undoubtedly contributed to recent decisions by states to procure offshore wind, as has the continued downward trend in the cost of offshore wind. State vs. federal The lack of a comprehensive energy policy in the U.S. means that states are free to determine their own renewable energy pathways. However, it also results in tension between the speed at which the states want to move and the drawn-out Federal government processes. The Federal government – specifically the Bureau of Ocean Energy Management (BOEM) – is one of the most important stakeholders in the early phases of an offshore wind project. With regulatory control over the outer continental shelf, the BOEM is the gatekeeper– identifying and leasing the wind energy areas, approving construction and operations plans, and giving final approval for the design and installation of each offshore wind farm. Unfortunately, some projects are currently facing delays in the approval process. This is a concern for developers, turbine OEMs, vessel owners, and other supply chain stakeholders globally. Additionally, many developers who are trying to enter the U.S. market have not been able to advance because of the limited availability of wind energy areas. Lack of certainty and clarity are significant challenges to an industry trying to gain a foothold, especially given the ambitious state targets.
Global experience, local voices Global offshore wind experience is invaluable to the U.S. market, and will allow the local industry to take advantage of the technology advances and lessons learned elsewhere. Yet it is paramount that developers have a strong local presence and remain flexible because the industry in the U.S. may not mature the same way it has globally. American stakeholders have not yet been exposed to commercial-scale offshore wind, and their concerns carry significant weight with decision makers. Given the strong role that the states are playing in the industry’s momentum, they need to ensure that local stakeholders are heard and will reap the benefits of offshore wind – the jobs, infrastructure development and clean energy. A land of opportunity The U.S. market certainly poses challenges and risks: the supply chain is not mature, supporting infrastructure is needed, and federal policies are still under development. However, individual states continue to drive the agenda forward, and with $70 billion (around €63 billion) worth of investments projected over the next decade, the U.S. wind industry has significant momentum. This momentum will tip the U.S. industry scales, allowing offshore wind to grow, thrive and be an integral part of the nation’s clean energy future.
U.S. DEVELOPMENTS 27
The U.S. wind industry has significant momentum. This momentum will tip the U.S. industry scales, allowing offshore wind to grow, thrive and be an integral part of the nation's clean energy future
08 OFFSHORE WIND: THE 28 the power POWER to TO progress PROGRESS
Offshore wind can probably continue to grow in size for many years to come
THE FUTURE 29
Lars Landberg on the future:
WHAT DOES THE FUTURE HOLD? When looking at the future of offshore wind energy, two mega-trends are very clear. Firstly, the overarching mega-trend will be the relentless drive to reduce the levelized cost of energy (LCoE). Secondly, in many ways a result of the first trend, turbines and wind farms will continue to get bigger.
E
ver since the first offshore wind farm at Vindeby began operating in 1991, the drive to reduce LCoE, both capex and opex, has been the focus of the entire industry. Much has been achieved already, but continuous innovation is required to keep forcing the curve downwards. This goal will launch several new trends. New challenges, new trends Already ongoing for some time, the increasing size of wind turbines and wind farms is expected to continue long into the future. Unlike onshore wind farms, where logistical challenges might put limits on turbine size, offshore wind can probably continue to grow in size for many years to come. Initially, offshore limitations might come in the form of materials and overall structures. However, as we see it, this will not be the case in the near future. We will soon see very large, utility-scale wind farms with enormous turbines, leading to new challenges in construction, installation, operation and maintenance (O&M). Another new trend – the use of robotics and artificial intelligence (AI) – will address this particular issue. Getting the power from these very large power plants to shore will also be highly important. Wind farms built by robots AI and robots seem to be everywhere. Certainly, as described in DNV GL’s paper: Making Renewables Smarter (2018), Landberg and Traiger discuss that both technologies definitely have a place in offshore wind. We see the application of robotics in wind farm construction and O&M. In construction, robots will initially supplement human capabilities, for example, in heavy lifts and underwater work. They will go on to handle an increasing amount of offshore wind farm construction as farms are located in increasingly remote and hazardous environments. On the O&M side, robots will take on activities, such as on-site repairs and inspections inside, outside (by drones and crawlers) and below the surface (by Remotely Operated Vehicles).
In the beginning, most robots will be controlled by humans. However, autonomous robots will appear before too long. Their first application is likely to be autonomous inspection by drones (which is already possible technically and only held back by regulations). Further ahead, a possible – and perhaps slightly scary – future scenario could see offshore wind farms autonomously built and operated by robots! The smart potential for safe, optimal performance Machine learning (ML) is the branch of AI concerned with controlling robots, particularly autonomous ones. The more autonomous the robots become; the more ML is needed. However, ML will also be used to make offshore wind farms “smart”. Many applications will be possible. Among them predictive maintenance, where crews (and/or robots) are sent out to repair the wind turbines before they break down. Another example is wind farm control. Here ML-based systems will ensure individual turbines are operated to optimize the entire wind farm’s output, while minimizing wear and tear. The potential for robotics and ML applied within offshore wind is immense. Nonetheless, concerns regarding privacy, reliability and social issues must be taken into account every step of the way.
30 OFFSHORE WIND: THE POWER TO PROGRESS
About the authors:
Peter Brun Segment Leader, Offshore wind peter.brun@dnvgl.com
Steve Gilkes Head of Section, Systems & Offshore Structures steve gilkes@dnvgl.com
Magnus Ebbesen Senior Consultant magnus.ebbesen@dnvgl.com
Peter has long experience in the wind energy industry and international diplomacy. Peter's rich and varied wind expertise includes working for leading wind turbine manufacturer Vestas, holding Vice Chairman roles at WindEurope and GWEC, and acting as Chairman of Wind Denmark.
Steve has over 30 years' experience in the wind turbine engineering discipline. Steve has designed a variety of wind turbine models from 1-7 MW turbines for use in onshore and offshore environments.
Magnus has more then 10 years' experience in the wind industry and has a deep understanding of floating offshore wind having conducted wind market and cost studies for many leading floating wind developers.
Per Enggaard Haahr Regional Manager APAC, Renewables Certification per.enggaard.haahr@dnvgl.com
Gunnar Heymann Director and Service Area Leader, Energy Advisory gunnar.heymann@dnvgl.com
Simon Cox Head of Section, Offshore Projects simon.cox@dnvgl.com
Per has over 10 years' experience in the offshore wind industry. Per currently leads major projects within Asia and has extensive experience of certification schemes and standards for offshore wind farm projects.
Gunnar is Energy Advisory's Director and Service Area Leader. Gunnar has over 25 years' experience of integrated energy systems, electrical grids in all voltage levels targeting large electrical infrastructures and system operation.
Simon has over 15 years' experience in the offshore wind industry. Simon has a wealth of experience in technical due diligence of offshore wind energy projects in development, under construction and in the operating phase.
ABOUT THE AUTHORS 31
Fernando Sevilla Montoya Senior Engineer, Offshore Projects fernando.sevilla@dnvgl.com
Peter Frohbรถse Principal Engineer peter.frohboese@dnvgl.com
Lars Landberg Group Leader, Technology and Research Renewables lars.landberg@dnvgl.com
Fernando is a Senior Engineer with over seven years' experience in the offshore wind industry. Fernando specializes in offshore wind O&M and construction, regularly reviewing and analysing both technical and commercial aspects of O&M resourcing and operational expenditure.
Peter has over 16 years' experience in the renewable energy industry, the last 10 of which have been focused in offshore wind, particularly turbine technology, project development, capex/opex and risk management.
Lars has over 30 years' experience in the wind energy industry. Lars is currently Director and Group Leader of DNV GL's Group Technology and Research Renewables team, which aims to advance knowledge and capabilities within the renewables industry.
Lars Klett Principal Engineer, Loads and Site Conditions lars.klett@dnvgl.com
David Maloney Country Manager, Renewables Certification USA david. maloney@dnvgl.com
Alana Duerr Director, Offshore Wind North America alana.duerr@dnvgl.com
Lars has over 17 years' experience in the wind industry, in both emerging and established markets. Lars has acquired deep domain knowledge related to the loads and dynamic behaviour of wind turbines.
David has over 13 years of geotechnical experience, eight of which has been focused on offshore wind. David's first five years of experience were acquired on onshore civil design projects.
Alana holds a Ph.D. in Ocean Engineering and has over seven years' experience in the offshore wind environment. Alana has a wealth of experience within the U.S. market and led offshore wind activities within the U.S. Department of Energy's Wind Energy Technologies Office.
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