26/06/18 – Offshore Wind Sector Deal: Transforming People, Power and Places around the UK

Speakers: Mary Thorogood, UK Stakeholder Lead, MHI Vestas Offshore Wind; Benjamin Sykes, UK Country Manager, Wind Power, Orsted; Charles Thompson, Director of Communications, ORE Catapult

26th June 2018

All-Party Parliamentary Group on Energy Costs

‘Offshore Wind Sector Deal: Transforming People, Power and Places around the UK’

Chair: Lord Whitty

Speakers: Mary Thorogood, UK Stakeholder Lead, MHI Vestas Offshore Wind; Benjamin Sykes, UK Country Manager, Wind Power, Orsted; Charles Thompson, Director of Communications, ORE Catapult

Chair’s Opening Remarks:

I’d like to extend a warm welcome to you all to this, the 44th meeting of the All-Party Parliamentary Group on Energy Costs.

I am Lord Whitty, a Labour Peer and a vice-Chair of this Group.

In March, the UK offshore wind industry said it would begin engagement with the UK government on agreeing a Sector Deal.

The industry’s ambition is to produce one third of UK electricity from offshore wind by 2030 and more than double its capacity from 13 GW installed or contracted currently to 30 GW by that time.

The Offshore Wind Industry Council (OWIC) expects the required investment to be £48 billion, creating 16,000 additional jobs in the process. They say that this would boost exports fivefold to £2.6 billion a year and reduce UK system costs by £2.4billion a year.

The target was to secure the deal by the middle of 2018. What has happened and is the deal realistic?

We have three excellent and very pertinent speakers I have asked them each for 5-7 minutes opening remarks after which we will go on to our normal Q&A.

Mary Thorogood, UK Stakeholder Lead, MHI Vestas Offshore Wind

We are a joint venture between Mitsubishi Heavy Industry and Vestas, which is a Danish turbine manufacturer. We’ve been around since 2014 and we’re seen as a challenger to Siemens, especially in Hull. We won over 50% of capacity at the last CFD auction, so we certainly like to think of ourselves as snapping at Siemens’ heels and we have a big contribution to make in the UK.

Our main facility in the UK, like Siemens, is a blade factory which is based on the Isle of Wight and employs 300+ people. We now have the whole blade value chain in and around the south coast, and that’s everything from manufacturing the blades, to painting them and exporting them from Portsmouth Harbour to projects both in the UK and overseas. Our investment there is also good for Isle of Wight employment, which traditionally is not high.

Why does the Sector Deal matter to us? As a business we want to be competitive, and we’ll achieve that by doing two things. We’ll have our manufacturing as close to the market as we can have it, and also have an efficient supply chain beneath that to draw on. As a manufacturer it takes us 5 to 7 years to start recouping our investment when we build these facilities, so we need to see what our market visibility is over that time. We need access to the right skills and time to develop them, which we have done on the Isle of Wight by investing significantly, along with other local industries, in a local college.

We get better and cheaper through repetition, and that’s what having the pipeline allows us to do. If you talk to firms in the next tier of the supply chain – companies like Hutchinsons, Sea Jets, etc. – they have empty factories because of the way the UK does its auctions. They can’t get better because they start work, stop, start work, stop – and that means that their costs increase, so they can’t compete with other companies from other markets.

So one, the Sector Deal gives us visibility, and also visibility for our supply chain which will help them to be competitive as well as helping drive down the cost to the consumer. It will give us a framework for collaboration with our supply chain, and bring on board support for small business in terms of contracting with a big business like ours, finding those export markets, learning to access them and what qualifications are needed . . . all those pieces that as big business, we take for granted.

So in the Sector Deal we’d like to introduce an accelerator for those small businesses to access markets both at home in the UK and overseas. It’s clear that the sector is not just about more factories – we’re always asked when there will be another factory and we understand that – we’d love to invest more in the UK, but it’s really more about long term investment which will develop more jobs in the places in the UK where they are needed.

What will happen if we don’t get the deal? Well, life will go on, of course, but the UK has made significant investment in offshore wind so now’s the time to capitalise on that. This is the opportunity to recoup the value of that investment. It’s a global race: the UK’s market share today is 40% but by 2030 this will go down to 20% as Asia, the US and the rest of Europe start to catch up. What we’re seeing at MHI Vestas is that markets are learning from us – in particular Taiwan and the US. They’ve learned what it takes to build a successful industry and they’re leveraging that, so as MHI Vestas we are increasingly going to have options, for example where we place our factory investment if we don’t have the visibility we need: we’re a global business, and we can look elsewhere.

So I think it’s in the Government’s gift to give us a deal and we are not asking for new money – it’s just around market visibility and a number of other pieces which I think Charlie might talk about that will really help us leverage on that opportunity that we already have.

Benjamin Sykes, UK Country Manager, Wind Power, Orsted

Background on the industry: offshore Wind started going in the early / mid noughties with the Blyth 2 WTGs in 2000, and we have seen capacity grow steadily since then. Consistent policy across political parties and strong innovation has driven the  UK’s global leadership in the sector, and we now have more offshore wind installed than any other country in the world: there are 33 wind farms now running around the UK. Around 6% of GB electricity demand came from offshore windfarms last year, enough to power more than 6 million homes, and we’re on track to be at 10% by 2020.

Costs have come down rapidly, and offshore wind will be one of the lowest cost sources of new power in the 2020s. AR2 delivered strike prices on average 47% lower than the previous offshore wind auction two and half years before (£74.75 per megawatt hour for delivery in 2021/22 and £57.50/MWh for delivery in 2022/23), which is significantly cheaper than the 35-year contracts the Government is offering for new nuclear power (i.e. Hinckley) of £92.50/MWh, and the levelised cost of gas, according to BEIS figures.

Drivers of this cost reduction are scale, innovation and learning. OREC is driving innovation in the UK and Charlie will talk about this in more detail.

In terms of jobs, there are 15,000 people directly employed, and this employment is in all the “right” parts of the country, and the right type too: long term, skilled jobs.

The Sector Deal: For infrastructure, the UK offshore wind industry can deliver 27,000 high-value direct jobs, over £48 billion investment in new infrastructure and a five-fold increase in global exports to £2.6bn a year, by 2030. To achieve this, we need a clear timeline for future projects, based on a visible pipeline of CFD auctions out to 2025, with one at least every 18 months. This crucial element of the Sector Deal will give confidence for supply chain firms to invest in the UK and continue to drive down costs.

In terms of place and people, the offshore wind industry can revitalise coastal communities, creating tens of thousands of skilled jobs, increasing productivity and creating new opportunities in areas of low employment.

In the business environment, the global offshore wind market is growing rapidly, and UK firms must be ready to seize this lucrative opportunity worth over £2.5bn a year to the UK supply chain by 2030.

A full review of the offshore transmission regime is required urgently, to ensure it is fit for purpose as we modernise the UK’s energy infrastructure. We are aiming to optimise our offshore transmission connections to save money for consumers.

With continued funding from industry, the Sector will spark innovation in decarbonisation and the development of new technology across a range of other sectors (such as robotics and automotive), to deliver economic benefits to the UK.

The key to unlocking all this is for the industry to have a clear pipeline of capacity to build.

Other markets eg NL, Taiwan, are now giving more visibility of future capacity allocation than the UK; the UK needs to create the same level of visibility of the market if investors in the supply chain are to invest here rather than in one of the many other existing and emerging offshore wind markets. That’s why the central ask of government in the Sector Deal is to set out a clear pathway of CfD auctions which will deliver the 30GW of total capacity.

Charles Thompson, Director of Communications, ORE Catapult

 The Catapult Network

  • 10 Catapults, diverse sectors, a network of world-leading centres designed to transform the UK’s capability for innovation in specific areas and help drive future economic growth.
  • Core grant funded by UK Government
  • Independent, not-for-profit.

ORE Catapult

  • Reducing the cost of offshore renewable energy
  • Delivering UK economic benefit by accelerating the commercialization of innovative technologies and services
    • Operational for 5 years;
    • Over 150 people;
    • Main operations in Glasgow, Blyth, Levenmouth and Hull, with further activity in Wales, the south west and East Anglia.
    • Operating the world’s leading offshore renewable energy testing and demonstration centre in Blyth;
    • Working closely with OEMs and other large industrials, the developers and owner/operators – to improve existing and develop next generation renewable energy technology in the UK.
    • In so doing, we enable and support the development of a vibrant indigenous supply chain, provide a clear route to market for innovative new companies and technologies, and direct and pull through applied research from the UK’s world-leading academic base.
    • Since 2013, we have supported over 400 UK SME, participated in 300 academic collaborations and over 600 industry collaborations

Offshore Wind

The potential and need for innovation from the offshore wind sector deal vision – and directly resulting UK economic and social benefit – is enormous

  • Investment in new UK offshore wind farm capacity from now to 2021 will total £18bn
  • Over 600 UK companies work in the sector today with 11,000 employees
  • Significant opportunity for growth and involvement in international exports
  • Cost reduction to date has been far ahead of expectations. Target set in 2012 was to reach £100/MWh by 2020; Sept 2017 CFD auction achieved a lowest cost of £57.50, a 50% reduction in only two years.
  • Offshore wind is on course to be the lowest cost, large scale low carbon form of generation; Committee on Climate Change recognises that it is an essential component of meeting the 5th carbon budget
  • Strong success story for developing regions with greatest need, meaning outside south-east.
  • Continued cost-reduction is essential to meet future auction prices
  • Offshore wind must also continue to be a great UK success story, and this needs to be delivered through innovation in the supply chain to meet future technology and service requirements – both from tech transfer from other sectors and development of entirely new technologies. Such innovation will make the UK supply chain more competitive, increasing UK content in UK offshore wind projects and delivering the export growth predicted in the Sector Deal vision.

Technology Innovation

  • ORE Catapult at the forefront of driving innovation for the sector today
    • Turbines – GE developing Haliade-X 12MW turbine at ORE Catapult
    • Blades – currently testing longest blade in the world, at 88.4m.
    • Leveraging world leading academic expertise; eg. ORE Catapult blade research hub with University of Bristol, tapping in to materials and aerospace expertise
  • Balance of Plant
    • Cables
      • JDR Cables working in our HV Labs, developing 66kV; next generation of dynamic cables
    • Foundations
      • Structural design to new coatings
    • Operations & Maintenance
      • Taking advantage of our experience from installed capacity
        • Smarter O&M through autonomous systems, AI, predictive maintenance
        • Improving health & safety – using robotics for dirty, laborious or dangerous tasks
      • Going forward, Offshore Wind Innovation Hub
        • BEIS funded, operated by ORE Catapult and KTN
        • Aligning priorities of sector between industry and government
        • Detailed route maps for innovation requirements
          • Next gen turbines
          • Sub-structures
          • Electrical infrastructure
          • O&M and windfarm lifecycle
        • Longer term, also looking at development of floating wind, and how the broader energy system will adapt to incorporate higher penetration of renewables

Summary

  • We see an offshore wind Sector Deal as being a vital piece of the jigsaw that will bring long term confidence to the industry, which will allow project and technology developers to continue to push the limits (size, scale, speeds), and the supply chain to continue to invest in innovation, and deliver significant UK economic growth, both in terms of UK jobs throughout the country and in exports around an increasingly valuable global industry.
  • ORE Catapult’s role is to enable and draw together these strands of innovation to the benefit of the UK economy.

 

After some further discussion, questions and comments, the meeting closed at 5.30 pm.