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How UK Fight For Offshore Wind Jobs Could Reset the Supply Chain

The U.K.’s contracts for difference (CFD) scheme has been praised for delivering projects at ever more competitive prices with investor-friendly guaranteed revenues.

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 non-binding ‘Sector Deal.’ That’s a lot of potential business given that the country’s official climate advisors, the Committee on Climate Change, is calling for 75 gigawatts in UK waters by 2050, building on the current installed base of 9 gigawatts.

Even in its non-binding 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 adds that GE’s existing facilities in France will be re-tooling to make the firms Haliade-X turbines once an existing order has been fulfilled. But without additional capacity on top of that, the firm may not be able to fulfil Haliade-X orders beyond the 4.8 gigawatts of contracts its 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 supplies high-voltage equipment to the offshore wind sector, among others.

Pressure in Scotland

Pressure for the increased local content requirements is coming from authorities in Scotland. The government in Edinburgh has some powers over energy but the CFDs are the responsibility of London.

In a statement sent to GTM, Scotland’s energy minister Paul Wheelhouse said his department was working with the sector to make clear that meeting the ambitions for sector requires 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 stinging from the bailout of a fabrication yard in Fife. Several gigawatts of offshore wind will be built off the coast of Fife in the next few years. 

BiFab was bailed out be the Scottish government with first a loan then an equity stake. This summer BiFab was reportedly awarded just eight of the 53 jacket sleeves for EDF’s 450 megawatt Neart na Gaoithe project (NnG).

EDF had not responded to a request for comment at the time of writing and has yet to confirm the contract award to BiFab.

Incidentally, Neart na Gaoithe is Scots Gaelic for Scattered Clouds.

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 parts of the lifetime costs better than others (PDF).

“The U.K. is already particularly strong on operations and maintenance over the 25-year lifespan of projects, with 75 percent going to U.K. firms, as well as 73 percent of the expenditure on planning and developing projects,” said Luke Clark, Renewable UK’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 much lower than that.

Were stricter content requirements to graduate from a target to 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. £100m ($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 £150m ($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.

Source: Greentech Media