Offshore wind generation projects high stakes gambit

Offshore wind turbines generate a fraction of the world’s total electricity but the potential is enormous…and so are the risks. Offshore turbines generate only 9GW, or about 2.5% of the world’s installed wind power. Yet, some current sea-bound projects, centered on the North Sea, represent enormous bets in renewable energy. They match technological advances with impressive feats of engineering and extremely challenging logistics.

To understand the stakes involved, head first to the British city of Hull, on the Humber Estuary, 25 miles from the North Sea. There, work has begun on a massive £310 million (US$ 476.22 million) project that will transform a more-than-century-old port facility called Alexandra Dock into a state-of-the-art Siemens AG wind turbine blade factory, storage facility and staging area for wind farms installation. Siemens, which dominates offshore wind turbine and blade manufacturing, plans to produce its first 75 meters blade in Hull by the end of next year. These blades will be initially used in Siemens’ 6MW offshore turbine, but can be utilized in the company’s next-generation 7MW turbine as well. Move next to Germany. In August, Siemens announced it would build a new EUR 200 million (US$ 224 million) factory to produce the larger turbine components in Cuxhaven, also on the North Sea, this old fishing port at the mouth of the Elbe River. Siemens will begin construction later this year on the factory, with initial production of the nacelles – the structures that house the generator, gearbox and drivetrain - set for mid-2017. The British, German and Danish markets are all being targeted for the turbines and blades, said Ray Thompson, head of Siemens’ business development, offshore UK. The Hull project is one of Siemens’ biggest investments in years, with Cuxhaven not far behind. They also represent a move toward larger and larger turbines, bigger arrays and wind farms that are further offshore or in deeper waters. “Wind is still a more expensive technology than some of the other choices, but we’re getting very quickly toward the point of parity where it won’t be that much more expensive,” said Thompson. “That’s partly bigger wind farms, that’s partly bigger turbines. It’s the whole industrialization-like process that includes logistics.” The largest offshore wind farm so far is the London Array, which came online in 2013 off the coast of Kent. It produces 630MW of energy through 175 turbines. But that’s nothing compared to the Dogger Bank Creyke Beck development. The British government earlier this year approved the project, which will be centered in relatively shallow waters about 80 miles off the east coast of Britain, near Yorkshire. A high-powered international consortium plans two farms of 1.2GW each, with a total of perhaps 400 turbines. To put that in perspective, the 2.4GW power generation would match Britain’s second-biggest existing power plant complex. It also represents almost one-quarter of currently installed offshore wind generation globally. Larger turbines, blades and arrays translate into economies of scale, even if the price tags for these new wind farms are sky-high. “As the industry grows and technology develops, the overall costs are being driven down,” said Madeline Hodge, a senior environmental consultant with NIRAS Consulting Ltd. “Banks Full On” Now under construction in the Dutch North Sea, the Gemini wind farm is budgeted at EUR 2.8 billion (US$ 3.14 billion), the costliest wind project yet. When completed in 2017, Gemini will be able to produce 600MW. The Dogger Bank development is estimated to cost anywhere £6 to £8 billion (US$ 9.22bn-$12.29bn). These kinds of projects require major investments in both cash and bank debt. Yet Gemini, for one, raised the necessary funds in a remarkably short six months. According to financial advisory Green Giraffe, this is as fast as it goes for an offshore project, and was all the more impressive for a deal of that size. The loans are long-term, typically 12 to 15 years after a project’s completion. But as long as lenders see certainty in regulations, price regime and cash flow, it’s possible to obtain financing these days on attractive terms, said Jerome Guillet, Green Giraffe’s Paris-based managing director and a veteran in offshore wind financing. “Banks are now full-on,” he said. “There’s plenty of liquidity.” “Investors have seen the industry grow,” added Hodge. “The industry now is able to measure risk and investors can make informed decisions on what they’re getting into. They see it as a reliable place to put money.” Scaling the Logistics These larger and larger installations have major consequences for logistics that surround the construction and maintenance of wind farms. Dockside factories aren’t just a choice these days; they’ve become a necessity. “The scale of these machines mean you need to produce locally,” said Steve Sawyer, secretary general of the Global Wind Energy Council. Overland transport of the giant blades may be technically feasible, but in practical terms, it’s pretty much out of the question. Road closures, slow-moving convoys, turns that can take hours all militate against moving by truck. “Having the facility right on the quay or the water’s edge is the only way to go,” said Thompson. The size and budget of these large projects allow purpose-built construction and maintenance vessels. While vessels built for oil and gas production can be used, the wear and tear on vessels setting up wind farms is far greater, said Carsten Jensen, managing director in the US for wind energy consultants K2 Management. And, Thompson added, the most efficient way to install the turbines is to transport four or even six sets at a time, which demand specially designed vessels. A wind farm in water more than 40 meters depth requires more complicated technology than the usual monopod foundation. Jacket/tripod foundations can be utilized in up to 50 meters, but anything deeper than that requires floating platforms. Because the winds tend to be stronger and more sustained, farms are moving further offshore to take advantage of heightened production. However, there are additional logistical challenges. For example, personnel can’t be ferried daily from shore and must live at sea in specially outfitted vessels. Workers also face difficulties merely getting from the transport vessels to the platforms in rough seas. Having vessels that can overcome these challenges “brings a key advantage in being able to support offshore,” said Thompson. In June, Esvagt A/S christened the industry’s first-ever purpose-built service operation vessel, which Siemens will use for the Butendiek wind farm in the North Sea off the German coast. “The scale helps,” said Thompson. “Once you build a critical mass and you’ve got more projects offshore, then you can buy the right tools for the job even if they’re very expensive.” This growing emphasis on sophisticated vessels and sea-going operations has attracted marine engineering companies that in the past focused on offshore oil and gas and dredging. Most notable is Rotterdam-based Van Oord, a more than century-old dredging company that is seeing impressive revenue growth on the back of offshore wind projects. It owns 10% of the Gemini project and is responsible for installing the equipment.

All this business aside, favorable winds aren’t always at the backs of the offshore industry, however. The most upbeat estimates suggest offshore wind will constitute 10% of total wind generation by 2020, but that’s looking “quite ambitious at present,” believes Sawyer. Other estimates believe that will be closer to 3% of the total. “Offshore is slower, more difficult and more expensive than anyone envisioned,” he said, although he’s quick to add yields offshore are higher than onshore and the potential remains enormous. The UK, Germany and Denmark hold a lion’s share of offshore wind, with farms in both the North Sea and Atlantic Ocean. France is only now beginning to seriously explore the potential. China, which has emerged the global leader in wind energy, has so far only about 600MW of offshore wind in the water and another 1GW under construction. Japan has a demonstration project, but is moving extremely slowly with commercial production. Stymied Potential Then there’s the US. It has huge offshore wind potential, with some estimates as high as 4,000GWs. But the industry remains bogged down in political infighting and stubborn opposition by both local residents and interests allied with conventional energy. Add to that the Washington gridlock, which makes regulations and incentives for wind energy in general far more short-term than investors and developers need. A Massachusetts project called Cape Wind was first proposed in 2001. Opponents have held up implementation and it’s pretty much dead in the water. On the other hand, construction is underway for America’s first offshore project, off the coast of Rhode Island. The Block Island Wind Farm will generate a modest 30MW when completed. According to projections by the wind energy consultancy MAKE, the US should have installed offshore wind capacity of only 1.4GW by 2024, compared to 46GW onshore. “We do see some policies in place, but they’re just isn’t enough long-term certainty,” said Leila Garcia, a MAKE consultant based in Portland, Oregon. Because of these uncertainties, the US has yet to build up the necessary supply chain for offshore. In fact, several US-based, wind-power manufacturing facilities have closed in the past half-decade because of bruising competition. That supply chain gap will likely impede development even if and when political barriers can be lifted. It’s a kind of chicken-and-egg situation. “What comes first, developers or the supply chain?” asks Jensen. “I know a lot of companies that are willing to invest. The problem is they can’t get any commitment and that can take years,” he said. “It is very expensive,” he agrees. “But they will build where they have the belief they have the market.” Jensen, for one, is update about offshore prospects. He believes various barriers, political and economic, will be overcome. It will just take time. “There’s no difference with what happened in Europe. Some projects that were developed there took five, eight years to happen.”