uk opportunities in the journey to subsidy free
TRANSCRIPT
2/19
1. Journey to ‘Subsidy free’
2. UK content – past, present and future
3. Transparency in measuring local content
4. Opportunities for doing business
Contents
Agenda UK opportunities in the journey to ‘Subsidy free’
Selected clients
BVG Associates
Business advisory
• Analysis and forecasting
• Strategic advice
• Business and supply chain development
Technology
• Engineering services
• Due diligence
• Strategy and R&D support
Economics
• Socioeconomics and local benefits
• Technology and project economic modelling
• Policy and local content assessment
© BVG Associates 2016
4/19
Developmentand project
management
Wind turbine supply26%
Balance of plant19%
Installation and commissioning
14%
Operation, maintenance and service
39%
Project other1.6%
1%Turbine
assembly
7%
2%
8%
4%
4%
Subsea export cables2%
1%
7%
8%
1%Installation ports
0.5%
2%
4.5%4%
3%
Operation, maintenance and minor service
20%
7%
12%
Blades
Castings and forgings
Drive train
Tower
Turbine other
Subsea array cables
Substations
Balance of plant
other
Foundations
Installation other
Subsea cable installation
Foundation installation
Turbine installation
OMSother
Major service
Wind farm design0.1%
Surveys0.3%
Source: BVG Associates
2%
1. Journey to ‘Subsidy free’ Going slow is not an option…
.
Cost of Energy Reduction = Offshore Wind Subsidy free by ‘23
© BVG Associates 2016
5/19
1. Journey to ‘Subsidy free’ What progress needs to be made?
Turbines Foundations Transmission Installation
Large quantities offshore: 130m diameter Improved design & manufacture Mounted on turbines More capable vessels
Prototyped onshore: 164m diameter Extended use of monopiles HVDC improvements Decreased weather sensitivity
Soon to be prototyped (public): 180m diameter Less use of crane vessels
FID in 2025: > 200m diameter
Main per MW benefits
Decreased foundation and installation CAPEX Decreased CAPEX Decreased CAPEX Decreased CAPEX
Decreased OPEX Decreased cost of capital
Increased energy production
Plus longer project life, decreased risk, improved operation, maintenance and service, improvements in contracting & sharing of data
Nothing radical (except the largest rotating machines on earth)
© BVG Associates 2016
6/19
80
100
120
140
2015 2020 2025 2030
Co
st o
f en
erg
y (£
/MW
h)
Year of first generation
Source: BVG Associates
£102
£98
£90
£84
30.7
60.8
61.2
84.2
£30
£27
£21
£16
£4.53
£8.20
£6.26
£6.54
1. Journey to ‘Subsidy free’ Will this just happen?
• Published alongside the CCC’s latest progress
report on decarbonisation and fed in to its
recommendations for the 5th carbon budget
Objective:
• To present recommendations to UK
government about policies to drive down
LCOE from offshore wind in 2020s and give
value to UK energy users
By:
• Quantifying the impact of government policy
drivers on cost of energy and support cost
for UK offshore wind in 2020s
• In a European market context, through robust
industry dialogue
• 1st time been robust analysis of the LCOE impact of
policy
• Key conclusions: 1. Substituting market with huge R&D funds isn’t the answer
2. Clear visibility of short-term plans for min 1GW/yr in UK & long-term intent saves 25% cost of support & increases UK activity
3. Increasing to 3.5GW/yr across EU has such impact on LCOE that hardly costs any more for 35% more output
Needs governments and industry to trust each other
© BVG Associates 2016
7/19
Source: BVG Associates
Project 3% (UK 2%)
Turbine 39% (UK 1%)
Balance of plant 28% (UK 5%)
Installation and commissioning
30% (UK 10%)
Source: BVG Associates
Capital expenditure
52% (UK 8%)Operational
expenditure 48%
(UK 36%) Source: BVG Associates
Capital expenditure 83%
(UK 28%)
Operational expenditure 17%
(UK 12%)
2. UK Content, past, present and future Right price for consumers, right for the planet and right economic benefit
© BVG Associates 2016
0%
20%
40%
60%
80%
100%
TOTEX DEVEX CAPEX OPEX
% U
K c
on
ten
t
Source: BVG Associates
• 10 UK wind farms larger than 100MW, completed 2009-2013
Disjointed progress
Generating &
transmission asset
CAPEX
Generating asset
TOTEX
Transmission asset
TOTEX
8/19
Balance of plant
Operation, maintenance
and service
Turbine
Installation and commissioning
Development and project management
Decommissioning
We have the largest market, but…
Confidence and market size are key to how far we get
© BVG Associates 2016
2. UK Content, past, present and future
Balance of plant
Operation, maintenance
and service
Turbine
Installation and commissioning
Development and project management
Decommissioning
70% UK content – not in current environment 50% UK content – good target for current projects
Nacelle assembly and
main component supply
Increased UK-based
supplier success
UK manufacture of replacement
components and UK SOV operators
Export cable and increased UK-
based foundation supplier success
Source: BVG Associates Source: BVG Associates
9/19
3. Transparency in measuring local content Without it, claims mean little
• Supply chain plan “gateway” into the
CfD auction process
• First introduced for “FiDER” projects
eg. Burbo and Walney extensions
• Three criteria: competition, innovation
and skills
• Overall intent is UK economic benefit
and lower cost of energy,
ie. a more sustainable industry
• Supply chain plans not UK content
beauty contests – about ensuring
that all reasonable steps have been taken to enable
UK supply
• Backed up by strong DECC, BIS and UKTI pressure!
Supply chain plans
© BVG Associates 2016
• Robust & consistent way to
communicate about UK content
• Built on early work published by E.ON
• Principles used in most 2014 supply
chain plans
• Developed for Offshore Wind
Programme Board with support from
DECC, The Crown Estate and Industry
• Developers committed to reporting on all
projects reaching FID after 1 Jan 2015
• Suppliers winning contracts over £10m on a given wind farm will be
responsible for formal reporting to developers
• RenewableUK will publish annual progress report on UK content
• Proactive suppliers using methodology to help communicate
opportunities for increased UK content
• Methodology includes guidance how to calculate – not onerous
UK Content methodology
10/19
Principles
Keep it simple…
© BVG Associates 2016
3. Transparency in measuring local content
A supplier with order ≥£10m needs to:
• Assess its own UK content
• Pass on requests to do same to each sub-supplier if value ≥£10m or
estimate for each sub-supplier if value <£10m based on:
• Any information provided by the sub-supplier
• Sub-supplier’s address
• Currency in which the payment was made
• Knowledge of sub-supplier’s activities, its supply chain and of
similar companies
11/19
Assessing UK content
Some simple rules to follow
© BVG Associates 2016
3. Transparency in measuring local content
UK content
Project-related purchases:
May be above or below £10m
Capital investments: allocate the depreciation
over the project
Overheads: allocate a fraction of expenditure to
the project
OPEX: undiscounted
lifetime operational spend
Margin: Assume it has the same UK content as the rest of the
spend
Insurance: It’s the UK content
of the insurer’s administration
Revenue from power or assets: not considered but
the cost of the sales activity could
be
• For each type of expenditure, a supplier needs to calculate:
• How much cost to allocate to the project
• What is its local content
• The cost allocation, particularly of capital investments, can make a
significant difference to the total UK content figure
• UK content can rarely be 100%:
• For any steel work, we have no iron ore mines
• For cables, we have no copper ore mines
• For vessels, we have no (economic) capacity to build jack-ups
• We import a proportion of our fuel
• Heavy machinery and tooling could well be imported
• Desk-based services use imported IT equipment or software
• Developers are working hard to get the right answer and expect the
same from their suppliers
13/19
Environmental
surveysTurbine assembly Array cables
Installation ports and
logistics
Fuel and
consumablesPorts and logistics
Consenting &
development servicesBlades Export cables
Turbine & foundation
installation
Maintenance and
inspectionMarine operations
Site investigations Drive train Transmission Cable installation Offshore logistics Salvage and recycling
Project management Power conversion Substation structures Substation installationVessels and
equipmentProject management
Large fabrications Turbine foundations Installation equipment Operations port
Towers Secondary steelworkInstallation support
services
Communication
systems
Small components Onshore worksInventory
management
Development and
project
management
Turbine supply
Balance of plant
Installation and
commissioning
Operation,
maintenance and
service
Decommissioning
4. Opportunities for doing business Generic perspectives for O&G players
• Project management - companies are already offering skills in managing complex projects offshore
• Array cables - requires similar skills and equipment to oil and gas umbilical manufacture
• Substation structures - typically one-off designs on a similar scale to oil and gas platforms
• Turbine foundations - fabrication skills to produce serially manufactured structures
• Secondary steelwork - more easily accessible market
• Cable installation - offshore wind contractors already transitioned from O&G;
learned that the complexity of offshore wind contracts presents significant new challenges
• Installation equipment - transition already made by many eg. In pile and cable handling equipment and trenching and burial tools
• Installation support services - experience valuable in diving, ROV services, marine consultancy.
• Maintenance and inspection services – experience working offshore on similar issues in more mature sector valuable
Top 9 areas
© BVG Associates 2016
Based on: Synergies, track
record in offshore wind, appetite
for new entrants, investment
required, LCOE reduction
opportunities & size of
opportunity
14/19
4. Opportunities for doing business Race Bank
© BVG Associates 2016
Soonest project
Lead developer(s) in italics. Lead operator(s) in bold
Known information shown in black text
BVGA insight shown in grey text
17/19
4. Opportunities for doing business Triton Knoll
© BVG Associates 2016
Next project to receive CfD?
18/19
4. Opportunities for doing business Lynn and Inner Dowsing (LID)
© BVG Associates 2016
Example operating project
19/19
Thank you BVG Associates Ltd
The Blackthorn Centre
Purton Road
Cricklade, Swindon
SN6 6HY UK
tel +44(0)1793 752 308
@bvgassociates
www.bvgassociates.co.uk
BVG Associates Ltd
The Boathouse
Silversands
Aberdour, Fife
KY3 0TZ UK
tel +44(0)1383 870 014
BVG Associates LLC
Green Garage
Second Avenue
Detroit, MI
48201 USA
tel +1 (313) 462 0673
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