The U.K.’s contracts for difference scheme has been praised for delivering projects at ever more competitive prices with investor-friendly guaranteed revenue.
This has certainly proved the case for the scheme’s largest beneficiary, the offshore wind sector. But there is growing discontent, especially among trade unions, that developers awarded these 15-year deals from the U.K. government in Westminster are not doing enough for the local communities they impact.
In March the industry agreed with the government to increase the targeted proportion of local content going into projects from 48 percent to 60 percent by 2030 as part of a nonbinding "Sector Deal." That’s a lot of potential business given that the country’s official climate adviser, the Committee on Climate Change, is calling for 75 gigawatts in U.K. waters by 2050, building on the current installed base of 9 gigawatts.
Even in its nonbinding form, this target could force manufacturers to make big adjustments to their existing footprints.
“Among the three turbine OEMs commercially active in the U.K., Siemens Gamesa and MHI Vestas have blade manufacturing facilities in Hull and the Isle of Wight, respectively, helping meet a portion of the local content requirement,” said Shashi Barla, WoodMac's principal analyst for the offshore wind supply chain.
“GE may also set up new facilities for nacelles and blades in the U.K., not only to meet the local content requirement but to de-bottleneck the capacity constraints to deliver future potential projects.”
GE Renewable Energy CEO John Lavelle has previously told GTM that a number of developers from the U.S., Europe and Asia are doing due diligence on the 12-megawatt turbines.
Barla added that GE’s existing facilities in France will be retooling to make the firm's Haliade-X turbines once an existing order has been fulfilled. But without additional capacity on top of that, GE may not be able to fulfill Haliade-X orders beyond the 4.8 gigawatts' worth of contracts it has secured.
GE Renewable Energy told GTM that it is talking to small and medium-sized businesses in the U.K. to qualify them as suppliers for the Haliade-X turbines. It also points out that its Grid Solutions business unit supplies high-voltage equipment to the offshore wind sector, among others.
Pressure in Scotland
Pressure for increased local content requirements is coming from authorities in Scotland. The government in Edinburgh has some control over energy policy, but the contracts for difference are the responsibility of London.
In a statement sent to GTM, Scotland's energy minister Paul Wheelhouse said his department is working hard to make clear that meeting the sector's ambitions will require a strong local supply chain.
“We also continue to call upon the U.K. government to consider how the contracts for difference process can be restructured to encourage wider use of the U.K. supply chain, by placing value on local supply chain content as part of revised award criteria,” said Wheelhouse. That would essentially mean embedding those commitments in the terms of the CFDs themselves.
The Scottish government is still reeling from the expensive bailout of the BiFab steel fabrication yard in Fife. Several gigawatts of offshore wind will be built off the coast of Fife in the next few years, but the jobs boost anticipated for BiFab and other local suppliers has fallen short of expectations.
This summer BiFab was reportedly awarded just eight of the 53 jacket sleeves for EDF’s 450-megawatt Neart na Gaoithe project (incidentally, "Neart na Gaoithe" is Scots Gaelic for "scattered clouds").
EDF had not responded to a request for comment at the time of writing and has yet to confirm the contract award to BiFab.
The U.K.’s energy department had not commented on the proposals from its counterparts in Edinburgh at the time the story was published.
Developer SSE Renewables was recently awarded a CFD for the Seagreen project. The contract covers 454 megawatts of the 1,075-megawatt site. Last week SSE scheduled three roadshow events for local suppliers as it looks to bulk up its U.K. content.
Capex lagging behind
Research by the trade body RenewableUK shows that offshore wind projects are currently doing a good job of localizing some parts of the lifetime costs, but less so with others (PDF).
“The U.K. is already particularly strong on operations and maintenance over the 25-year lifespan of projects, with 75 percent [of contracts] going to U.K. firms, as well as 73 percent of the expenditure on planning and developing projects,” said Luke Clark, RenewableUK's director of strategic communications.
The most recent data on this compiled by RenewableUK shows development and operating expenditure hitting localization rates as high as 89 and 92 percent, respectively. But capex maxes out at 38 percent, with some U.K. offshore wind projects seeing levels much lower than that.
If stricter content requirements are to graduate from being a target to being a contractual condition, that capex figure is going to have to improve. Couple that with the expansion of deployment, and it is obvious that things will need to change.
“As part of the Sector Deal, to achieve the growth of local content, the industry set up a new body this year,” said Clark. “The Offshore Wind Growth Partnership will support new British companies and existing firms in the supply chain. A total of £100 million ($129 million) is being provided by industry, local enterprise partnerships, local councils and development agencies to fund this new initiative."
“Also, between now and 2030, we expect the industry to invest a further £150 million ($194 million) in supply-chain companies. There is everything to play for as the U.K.’s offshore wind capacity quadruples over the next decade,” said Clark.
In Paris for EU Utility Week? Register your interest in joining Wood Mackenzie's November 13 breakfast presentation on new power markets research, right down the street from the convention center.