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  • 1. Scroby Sands - Supply Chain Analysis Final Report A Report to Renewables East by Douglas-Westwood Limited and ODE Limited Commissioned by the DTI DWL Report Number 334-04 July 2005
  • 2. Scroby Sands – Supply Chain Analysis Final Report Renewables East is a not-for-profit, independent company, grant funded by the East of England Development Agency, tasked with advocating the growth of renewable energy opportunities in the East of England. The company addresses issues underpinning the Government’s long-term strategic vision for a national energy policy that encompasses a response to the threat of climate change, the need to address the security of the UK’s energy supplies, and the opportunities to improve our economic competitiveness by the development and deployment of renewable energy technologies to achieve a low carbon future. (www.renewableseast.org.uk) The DTI 2010 Target Team is responsible for successfully delivering the Government’s target of 10 per cent of UK electricity from renewable energy sources by 2010. The team does this through co-ordination, influencing and driving of activity. Within the 2010 Target Team, the Business Development Unit is working with UK industry, tracking business opportunities, to help it win a greater share of renewables business. This involves working in partnership with the UK regions to drive the creation of economic benefit and jobs. The Renewables Advisory Board provides advice to Government on a wide range of renewable energy issues. The board is an independent, non-departmental public body sponsored by the DTI that brings together government departments, the renewables industry and the unions. It aims to develop mutual understanding of the key issues for the industry – like technology development, barriers to market penetration, and export enhancement – both in the short term and over the next 20 years. The board has seven workstreams that address some of the key issues and barriers to the Government’s target of providing 10 per cent of electricity from renewable sources by 2010. The workstreams, jointly chaired by a DTI representative and an industry member, are: making offshore wind work, finance and investment, jobs, emerging technologies, planning, unblocking Consents, Renewables Obligation Review. (www.dti.gov.uk/renewables) E.ON UK, the company that runs Powergen, is a leading energy company in the UK being the second largest electricity generator in the UK and owning the second largest distribution network in the UK. One of the UK’s leading wind farm developers with a portfolio of 20 wind farms either in service or under construction, producing enough power to supply 125,000 homes,E.ON UKalso runs and owns two hydro-power stations, including England and Wales’ largest hydro station, the 50MW plant at Rheidol in Ceredigion. The companyis also burning renewable biomass fuels such as woodchip and palm nuts alongside coal at some of its conventional power stations, and has outline planning permission to build a wood-burning power station at Lockerbie. (www.eon-uk.com) Vestas is the world leader in wind technology and a driving force in the development of the wind power industry. Vestas’ core business comprises the development, manufacture, sale, marketing and maintenance of wind power systems. Vestas started to manufacture wind turbines in 1979 and has played an active role in this dynamic industry ever since. In 1987, Vestas began to concentrate exclusively on wind energy and since then, the company has developed from a pioneer in the industry with a staff of around 60 to a global hi-tech market-leading group with more than 9,500 employees. (www.vestas.com) July 2005 2 Douglas-Westwood Limited & ODE Ltd
  • 3. Scroby Sands – Supply Chain Analysis Final Report Contents 1 EXECUTIVE SUMMARY .................................................................................................................................7 1.1 SCROBY SANDS CONTRACT HIERARCHY.......................................................................................................... 7 1.2 KEY AREAS OF UK AND EAST OF ENGLAND CAPABILITY................................................................................. 7 1.3 FUTURE UK AND EAST OF ENGLAND CONTENT............................................................................................... 8 1.4 RECOMMENDATIONS ........................................................................................................................................ 9 2 INTRODUCTION ..............................................................................................................................................11 2.1 AIMS & OBJECTIVES .......................................................................................................................................12 2.2 SCOPE OF WORK ............................................................................................................................................12 2.3 PROJECT DELIVERABLES ................................................................................................................................13 2.4 METHODOLOGY ..............................................................................................................................................13 2.5 RELATED STUDIES...........................................................................................................................................16 3 MARKET TRENDS ..........................................................................................................................................19 3.1 WORLD OFFSHORE WIND 2000-2009 .........................................................................................................19 3.2 UK OFFSHORE WIND .....................................................................................................................................21 3.3 EAST OF ENGLAND OFFSHORE WIND ............................................................................................................22 4 SCROBY SANDS .............................................................................................................................................25 4.1 CONTRACT HIERARCHY...................................................................................................................................26 4.2 UK CONTENT ..................................................................................................................................................31 4.3 EAST OF ENGLAND CONTENT .........................................................................................................................32 5 GAP ANALYSIS ...............................................................................................................................................35 5.1 THE UK SUPPLY CHAIN CAPABILITY ..............................................................................................................35 5.2 THE EAST OF ENGLAND SUPPLY CHAIN CAPABILITY .....................................................................................35 5.3 VALUE AND EMPLOYMENT ASSESSMENT ......................................................................................................36 5.4 GAPS IN THE SUPPLY CHAIN ...........................................................................................................................37 5.5 KEY AREAS FOR FUTURE UK CONTENT ..........................................................................................................39 6 POTENTIAL SUPPLY CHAIN PENETRATION .........................................................................................43 7 FORECAST ROUND 2 UK CONTENT ........................................................................................................49 7.1 UK ROUND 2 PROJECTS ................................................................................................................................49 7.2 TYPICAL ATTRIBUTES OF A ROUND 2 PROJECT .............................................................................................58 7.3 THE KEY CHALLENGES OF ‘SCALING-UP’ .......................................................................................................58 7.4 ROUND 2 CAPABILITY ASSESSMENT AND ANALYSIS .....................................................................................60 7.5 FORECAST CONTENT IN EAST OF ENGLAND ROUND 2 PROJECTS ................................................................64 8 INTERVENTION STRATEGIES AND FUTURE RESEARCH .................................................................68 8.1 BUSINESS DEVELOPMENT STRATEGY ............................................................................................................68 8.2 ACTION PLAN ..................................................................................................................................................70 8.3 RECOMMENDATIONS FOR FUTURE RESEARCH ..............................................................................................72 9 APPENDICES ....................................................................................................................................................73 Douglas-Westwood Ltd St Andrew’s House, Station Road East, Canterbury, Kent, CT1 2WD, UK tel: +44 1227 780999 fax: +44 1227 780880 email: admin@dw-1.com www.dw-1.com Offshore Design Engineering Ltd Marine Base, South Denes Road, Great Yarmouth, Norfolk, NR30 3PR, UK tel: +44 1493 845100 fax: +44 1493 847568 www.ode-ltd.co.uk The information contained in this document is believed to be accurate, but no representation or warranty, express or implied, is made by Douglas-Westwood Limited or Offshore Design Engineering Ltd as to the completeness, accuracy or fairness of any information contained in it, and we do not accept any responsibility in relation to such information whether fact, opinion or conclusion that the reader may draw. July 2005 3 Douglas-Westwood Limited & ODE Ltd
  • 4. Scroby Sands – Supply Chain Analysis Final Report Figures FIGURE 1-1: SCROBY SANDS – VALUE BY TIER 1 CATEGORY (£’000S)........................................................................ 7 FIGURE 1-2: FORECAST UK CONTENT IN EAST OF ENGLAND ROUND 2 PROJECTS ..................................................... 9 FIGURE 3-1: WORLD OFFSHORE WIND CAPACITY 2000-2009 (MW).......................................................................20 FIGURE 3-2: UK OFFSHORE WIND CAPACITY 2004-2012 (MW) ..............................................................................21 FIGURE 3-3: UK OFFSHORE WIND CAPITAL EXPENDITURE 2040-2012 (£M)............................................................22 FIGURE 3-4: EAST OF ENGLAND POTENTIAL CAPACITY 2004-2012 (MW)................................................................22 FIGURE 3-5: EAST OF ENGLAND POTENTIAL CAPITAL EXPENDITURE 2004-2012 (£M) .............................................23 FIGURE 4-1: SCROBY SANDS – £’000S ........................................................................................................................26 FIGURE 4-2: SCROBY SANDS – VALUE BY TIER 1 CATEGORY (£’000S)......................................................................27 FIGURE 4-3: SCROBY SANDS – HOURS BY TIER 1 CATEGORY ....................................................................................27 FIGURE 4-4: SCROBY SANDS CONSTRUCTION & OPERATION TIMELINE - MANHOURS .............................................30 FIGURE 6-1: CONTRACTING STRATEGIES – SCENARIO 1..............................................................................................43 FIGURE 6-2: CONTRACTING STRATEGIES – SCENARIO 2..............................................................................................44 FIGURE 6-3: CONTRACTING STRATEGIES – SCENARIO 3..............................................................................................45 FIGURE 6-4: CONTRACTING STRATEGIES – SCENARIO 4..............................................................................................46 FIGURE 7-1: UK STRATEGIC AREAS ..............................................................................................................................49 FIGURE 7-2: FORECAST UK CONTENT IN EAST OF ENGLAND ROUND 2 PROJECTS ...................................................64 FIGURE 7-3: FORECAST EAST OF ENGLAND CONTENT IN REGIONAL ROUND 2 PROJECTS ........................................65 FIGURE 7-4: UK AND EAST OF ENGLAND MAN-HOURS FOR A TYPICAL ROUND 2 PROJECT .....................................66 Tables TABLE 1-1: SCROBY SANDS – VALUE BY PHASE (£’000S) ............................................................................................ 7 TABLE 1-2: UK PROVEN CAPABILITY – TIER 1 COMPONENT ........................................................................................ 8 TABLE 1-3: FORECAST UK CONTENT IN EAST OF ENGLAND ROUND 2 PROJECTS ....................................................... 9 TABLE 1-4: FORECAST EAST OF ENGLAND CONTENT IN REGIONAL ROUND 2 PROJECTS............................................ 9 TABLE 2-1: DEVELOPMENT PHASE – COMPONENT ITEMS...........................................................................................14 TABLE 2-2: CONSTRUCTION PHASE – COMPONENT ITEMS .........................................................................................14 TABLE 2-3: OPERATIONS PHASE – COMPONENT ITEMS ..............................................................................................15 TABLE 3-1: WORLD OFFSHORE WIND CAPACITY 2000-2009 (MW).........................................................................20 TABLE 3-2: UK OFFSHORE WIND CAPACITY 2004-2012 (MW) ................................................................................21 TABLE 3-3: UK & EAST OF ENGLAND PROJECTS 2004-2013 – UNITS ......................................................................21 TABLE 3-4: UK OFFSHORE WIND CAPITAL EXPENDITURE 2004-2012 (£M) .............................................................22 TABLE 3-5: EAST OF ENGLAND POTENTIAL CAPACITY 2004-2012 (MW) .................................................................22 TABLE 3-6: EAST OF ENGLAND POTENTIAL CAPITAL EXPENDITURE 2004-2012 (£M)...............................................23 TABLE 3-7: EAST OF ENGLAND – OFFSHORE WIND FARMS OPERATIONAL & PLANNED 2004-2012 ......................24 TABLE 4-1: SCROBY SANDS – PROJECT DATA .............................................................................................................25 TABLE 4-2: SCROBY SANDS – VALUE BY PHASE (£’000S) ..........................................................................................26 TABLE 4-3: SCROBY SANDS – HOURS BY PHASE.........................................................................................................26 TABLE 4-4: SCROBY SANDS –VALUE BY TIER 1 CATEGORY (£’000S )........................................................................27 TABLE 4-5: SCROBY SANDS – HOURS BY TIER 1 CATEGORY ......................................................................................28 TABLE 4-6: SCROBY SANDS – DEVELOPMENT PHASE VALUE (£’000S)......................................................................28 TABLE 4-7: SCROBY SANDS – DEVELOPMENT PHASE HOURS ....................................................................................28 TABLE 4-8: SCROBY SANDS – CONSTRUCTION PHASE VALUE (£’000S).....................................................................29 TABLE 4-9: SCROBY SANDS – CONSTRUCTION PHASE COMPONENT VALUE (£’000S) ..............................................29 TABLE 4-10: SCROBY SANDS – CONSTRUCTION PHASE HOURS.................................................................................29 TABLE 4-11: SCROBY SANDS – COMPONENT CONSTRUCTION HOURS ......................................................................30 TABLE 4-12: SCROBY SANDS – 5 YEAR OPERATIONS VALUE (£’000S) & HOURS.....................................................30 TABLE 4-13: SCROBY SANDS – UK CONTENT VALUE (£’000S) ..................................................................................31 TABLE 4-14: SCROBY SANDS – UK CONTENT HOURS ................................................................................................32 TABLE 4-15: SCROBY SANDS – EAST OF ENGLAND CONTENT VALUE (£’000S).........................................................32 TABLE 4-16: SCROBY SANDS – EAST OF ENGLAND CONTENT HOURS .......................................................................33 TABLE 5-1: UK PROVEN CAPABILITY – TIER 1 COMPONENT ......................................................................................35 TABLE 5-2: EAST OF ENGLAND PROVEN CAPABILITY – TIER 1 COMPONENT .............................................................36 TABLE 5-3: SCROBY SANDS – VALUE (£’000S) ...........................................................................................................36 TABLE 5-4: SCROBY SANDS – HOURS ..........................................................................................................................37 TABLE 5-5: SCROBY SANDS – COMPONENT CONSTRUCTION (£’000S)......................................................................37 TABLE 5-6: SCROBY SANDS – COMPONENT CONSTRUCTION (HOURS) ......................................................................38 TABLE 5-7: SCROBY SANDS – OFFSHORE INSTALLATION (£’000S) ............................................................................38 TABLE 5-8: SCROBY SANDS – OFFSHORE INSTALLATION (HOURS) ............................................................................38 July 2005 4 Douglas-Westwood Limited & ODE Ltd
  • 5. Scroby Sands – Supply Chain Analysis Final Report TABLE 5-9: SCROBY SANDS – PROCUREMENT & MANUFACTURE (£’000S) ..............................................................39 TABLE 5-10: SCROBY SANDS – PROCUREMENT & MANUFACTURE (HOURS) ............................................................39 TABLE 5-11: SCROBY SANDS – POTENTIAL UK VALUE (£’000S)................................................................................39 TABLE 5-12: SCROBY SANDS – POTENTIAL UK HOURS ..............................................................................................40 TABLE 5-13: SCROBY SANDS – POTENTIAL EAST OF ENGLAND VALUE (£’000S) ......................................................40 TABLE 5-14: SCROBY SANDS – POTENTIAL EAST OF ENGLAND HOURS .....................................................................41 TABLE 7-1: TYPICAL PROJECT CHARACTERISTICS ........................................................................................................58 TABLE 7-2: HIGH-CASE – MAXIMUM POTENTIAL UK AND EAST OF ENGLAND VALUE (£’000S)...............................61 TABLE 7-3: HIGH-CASE – MAXIMUM POTENTIAL UK AND EAST OF ENGLAND HOURS .............................................61 TABLE 7-4: PROVEN-CASE – PROVEN UK AND EAST OF ENGLAND VALUE (£’000S).................................................62 TABLE 7-5: PROVEN-CASE – PROVEN UK AND EAST OF ENGLAND HOURS ...............................................................62 TABLE 7-6: LOW-CASE – UK AND EAST OF ENGLAND VALUE (£’000S) .....................................................................63 TABLE 7-7: LOW-CASE – UK AND EAST OF ENGLAND HOURS ...................................................................................63 TABLE 7-8: FORECAST UK CONTENT IN EAST OF ENGLAND ROUND 2 PROJECTS .....................................................64 TABLE 7-9: FORECAST EAST OF ENGLAND CONTENT IN REGIONAL ROUND 2 PROJECTS..........................................65 TABLE 7-10: UK AND EAST OF ENGLAND MAN-HOURS FOR A TYPICAL ROUND 2 PROJECT ....................................66 TABLE 8-1: EAST OF ENGLAND POTENTIAL CAPABILITY – TIER 1 COMPONENT .........................................................70 July 2005 5 Douglas-Westwood Limited & ODE Ltd
  • 6. Scroby Sands – Supply Chain Analysis Final Report July 2005 6 Douglas-Westwood Limited & ODE Ltd
  • 7. Scroby Sands – Supply Chain Analysis Final Report 1 Executive Summary 1.1 Scroby Sands Contract Hierarchy The development, construction and initial five years operation of the Scroby Sands offshore wind farm will result in a total expenditure of £80 million. Contracts to the value of £38.8m (48%) were sourced from UK companies, with £12.8m (16%) originating within the East of England. 50,000 Non-UK Other UK 40,000 East of England Expenditure £'000s 30,000 20,000 10,000 0 Annual O&M Surveys Transport & Management Procurement & Onshore Pre- Other Costs Installation Installation Development Environmental Insurance/Legal Detailed Design Manufacture Onshore Offshore Commissioning Delivery Monitoring Assembly Design Project Figure 1-1: Scroby Sands – Value by Tier 1 Category (£’000s) Table 1-1: Scroby Sands – Value by Phase (£’000s) East of EofE % £’000s Other UK Non UK Total Cost UK % England Development 335 922 480 1,737 72% 19% Construction 7,415 24,485 39,611 71,511 45% 10% Operations 5,095 550 1,180 6,825 83% 75% Total 12,845 25,957 41,217 80,073 48% 16% The highest levels of UK and East of England content were realised within the development and operations phases of the project. The construction phase presented the highest value phase of the project and despite there being some notable successes including foundation and cable manufacture, onshore cable installation, grid interface, and the installation of the export cable to shore this phase presents significant challenges for East of England and UK companies to deliver competitive products and services into future offshore wind projects. 1.2 Key Areas of UK and East of England Capability The majority of the UK’s 48% content has been sourced from successful penetration of the lower tiers of the supply chain with a significant number of relatively low value, service-based contracts with, for instance, the UK providing all environmental monitoring, survey, insurance/legal and onshore installation related works. Such activity was supplemented by high levels of East of England content within project management, onshore pre-assembly and operations and maintenance activities. July 2005 7 Douglas-Westwood Limited & ODE Ltd
  • 8. Scroby Sands – Supply Chain Analysis Final Report Table 1-2: UK Proven Capability – Tier 1 Component High Medium Low Environmental Development Design Monitoring Detailed Design Commissioning Procurement & Insurance / Legal Manufacturing Surveys Onshore Pre-Assembly Offshore Installation Project Management Transport & Delivery Onshore Installation Operations & Maintenance 70% of the value of contracts awarded for Scroby related to the procurement and manufacture of components and offshore installation. However, of a total value of £55.7 million, £19 million was sourced from within the UK and only £291,000 from within the East of England. Whilst the UK has sufficient fabrication and installation capabilities to cope with Round 1 projects it currently lacks both the capability and capacity to gain maximum attainable contract value from the Round 2 projects. The majority of the highest value contracts at the higher tiers of the supply chain (i.e. main contractor) were secured from outside the region and indeed outside the UK. Regional companies were able to penetrate the supply chain for the provision of lower tier labour intensive activities. This resulted in significant employment benefits for the UK supply chain with UK content at 48% of the value of contracts awarded on Scroby Sands accounting for 73% of the hours spent on the project, with East of England content growing from 16% to 40% respectively. An analysis of the contracts awarded within Scroby Sands shows that UK content could conceivably have been raised from £38.8 million (48%) to £56.5 million (71%) given current but as yet unrealised capability. The primary area of potential growth is offshore installation, where UK companies have the capabilities to perform all tasks. If the region could fully develop this inherent capability and offer a cost competitive suite of products and services, East of England content within Scroby Sands could have reached approximately £24 million. 1.3 Future UK and East of England Content 3000 Low-Case Proven-Case 2500 High-Case Total Cost 2000 Expenditure £m 1500 1000 500 0 2008 2009 2010 2011 2012 July 2005 8 Douglas-Westwood Limited & ODE Ltd
  • 9. Scroby Sands – Supply Chain Analysis Final Report Figure 1-2: Forecast UK Content in East of England Round 2 Projects Table 1-3: Forecast UK Content in East of England Round 2 Projects £m 2008 2009 2010 2011 2012 Total Low-Case 12 214 398 159 220 1,002 Proven-Case 33 602 1120 447 619 2,821 High-Case 49 889 1653 660 913 4,163 Total E of E R2 70 1,285 2,390 954 1,320 6,019 Using the data from Scroby Sands, total UK and regional content was forecast for future Round 2 projects within the Greater Wash and the Thames Estuary using 3 different scenarios. Total forecast expenditure on the Round 2 projects in the two strategic areas of relevance to the East of England amounts to approximately £6 billion. The low-case scenario forecasts that £1 billion should be achievable by UK companies. If a similar contracting methodology to Scroby Sands was used, UK content could be as high as £2.8 billion. The maximum potential UK content is forecast at approximately £4.2 billion. Table 1-4: Forecast East of England Content in Regional Round 2 Projects £m 2008 2009 2010 2011 2012 Total Low-Case 9 155 289 115 160 728 Proven-Case 11 204 380 152 210 957 High Case 21 385 716 286 396 1,804 Total E of E R2 70 1,285 2,390 954 1,320 6,019 From the total forecast expenditure on Round 2 projects within the area of influence of the East of England, regional value is forecast to be between £728 million and £1.8 billion. Scaled up levels of regional content achieved within Scroby Sands on all Round 2 projects in the two strategic areas would result in a forecast total regional spend of £957 million. Future regional, and indeed national, content will largely be determined be the use of a local port as a pre-assembly, construction and operations base. National ports face substantial competition from mainland Europe and without major improvements, such as Great Yarmouth’s Outer Harbour, logistical requirements and competitive forces will probably drive the opportunities elsewhere. 1.4 Recommendations The UK and East of England have demonstrated a high capability and competitiveness to attain significant value and work from future offshore wind projects. There are some significant challenges to be met to ensure national and regional economic benefits can be delivered. These actions need to further support and maintain existing capabilities whilst stimulating diversification and market entry into high value areas such as manufacturing and offshore installation. Whilst much of this action needs to be delivered at a regional level, it is important that it is backed up by a long-term co-ordinated approach from government. It is vital that the UK Government continues to show commitment to the sector and maintains market conditions that will support the transition from Round 1 projects such as Scroby Sands to larger and more technically complex Round 2 projects in the period up to and beyond 2010. Such support is necessary to the economics of the sector, both in terms of project financing and creating the confidence for required long-term investment by the developers and also the supply chain. Key tasks for the East of England are, therefore, as follows: • Knowledge Holding and Transfer – provision of market intelligence • Relationship Building – facilitating business-to-business linkage • Innovation Support – funding and support for small and medium sized enterprises • Strategic Support – inward investment and public sector infrastructure development. July 2005 9 Douglas-Westwood Limited & ODE Ltd
  • 10. Scroby Sands – Supply Chain Analysis Final Report July 2005 10 Douglas-Westwood Limited & ODE Ltd
  • 11. Scroby Sands – Supply Chain Analysis Final Report 2 Introduction Scroby Sands was commercially complete on 31st December 2004 and was formally opened in March 2005. It is the second of the UK Round 1 offshore wind projects to be constructed. To date, analysis of the economic benefits likely to accrue nationally and regionally from UK companies participating in these projects and future second round developments has been based upon high level capability assessments, rather than practical experience. Thanks to support from the Department of Trade and Industry, Renewables East, the renewable energy agency for the East of England, was able to commission research to accurately measure the level of UK penetration of Scroby Sands to confirm what economic benefits accrued nationally, regionally and locally during the development, construction and operation of the project. Direct benefits will be seen in terms of jobs created or safeguarded and the value of contracts secured. This analysis has only been possible with the support and involvement of E.ON UK Renewables Offshore Wind Limited (EROWL – formerly Powergen Renewables Offshore Wind Ltd), and the main contractors, Vestas Celtic, who acted as turbine supplier and engineering, procurement, installation and construction (EPIC) contractor. As with most large scale capital projects, commercial capabilities from those tendering their goods and services have been assessed through contractual processes, with corporate assessments of risk and cost determining the level of UK company involvement through the contracts awarded by the project developer and owner, E.ON UK Renewables Offshore Wind Limited and by way of the sub- contracts awarded by the main contractors, particularly Vestas Celtic. This contractual framework has had an effect on UK involvement in the project, offering an insight into how successful UK companies have been under international contracting procedures and how such procedures may change in the future with larger projects and with greater practical experience in construction. The timetable associated with the project also helped increase content through discussions with local firms during the development phase, with the period between the original tendering programme and the later resubmission of tenders being a key phase for regional companies to become involved with the project. The way in which contracts are assembled and subsequently issued for tender can have a pronounced effect on final tender submissions. In particular, inconsistent or over complex contracts can adversely affect the way in which a contractor will submit their tender, or influence if they will even submit a tender return at all. This is something that has been previously recognised in the offshore oil and gas sector through a sector wide initiative called Cost Reduction In a New Era (CRINE), where various areas of consistent over expenditure and complexity were reviewed with a view to standardisation. One of the key results of CRINE was the adoption of standard terms and conditions that could be applied across the whole sector. Whilst it is recognised that the offshore wind industry in the UK is still in its infancy, consideration for adopting standard terms of contract, could lead to a simplification of process and resultant savings. Logistical issues have also played their part, with equipment supply capabilities and construction port selection having a significant impact on direct, indirect and induced economic activity associated with the project. These issues will also have a bearing on the capability of individual and collective regions to meet the supply chain demands for the construction of future projects, particularly when the scale of the projects and number of projects to be constructed in any given year are increasing. Understanding the effect of logistical barriers will enable UK companies to target areas of the supply chain with the highest value or which are most open to UK and regional company involvement because of local knowledge, and also provide for an indication as to where strategic interventions by the public sector would derive greatest potential benefit. A thorough review of the Scroby Sands supply chain offers the potential to better understand the relative current success of UK businesses in securing work within the offshore wind industry. Building on this information a review can be undertaken of what further opportunities and challenges face the attempts to grow a strong domestic supply chain to support future projects of this scale and give a good indicator as to the challenges facing UK involvement in projects of a greater complexity and scale such as the second round projects. Finally, it becomes possible to forecast what additional research will be required to identify the appropriate level of strategic intervention and business support required nationally and regionally to secure a greater share of the economic benefits for the July 2005 11 Douglas-Westwood Limited & ODE Ltd
  • 12. Scroby Sands – Supply Chain Analysis Final Report UK economy as the industry matures and the rate of deployment of the technology accelerates to support growing national, European and world markets. 2.1 Aims & Objectives The study is specifically seeking to: • Map the supply chain to the Scroby Sands project down to Tier 3 service and component supply and identify the associated contracts, sub-contracts, and in-house services required to develop, construct and operate the project. • Assess maximum level of UK and East of England supply chain penetration in project construction on current contracting procedures and possible variance through use of alternative contracting structures. • Identify gaps within the supply chain for Scroby Sands that were not obviously open to UK penetration, confirm which of these opportunities could be targeted to maximise UK and regional economic benefits, and asses what mechanisms exist to develop the necessary business skills to secure contracts to supply goods and services in these areas. • Forecast likely scale-up effects in to a typical Round 2 project including changes in fundamental logistical, contractual and equipment supply requirements. • Outline potential future research required to assess probable UK supply chain levels in such projects and levels of public sector intervention required to support or extend the UK supply chain to secure greater economic benefits at national and regional level. 2.2 Scope of Work In fulfilling the aims and objectives of the study the following activities are underway: • Development Phase: Identify by value the principal development costs incurred by EROWL to advance the Scroby Sands project to a successful financial close. Identify the contracted service providers and those provided in-house by EROWL and assess the likely levels of employment directly attributable to these activities. • Construction Phase: Identify all major construction contracts awarded by EROWL, all major sub-contracts, particularly those of Vestas Celtic as EPC Contractor, and, as far as possible, principal turbine component supplies to Vestas Celtic as turbine supplier. Confirm contract values and assess likely levels of employment directly attributable to the supply of equipment and provision of services. • Operation Phase: Identify all operations and maintenance contracts awarded by EROWL, including those warranty services provided by Vestas Celtic as turbine supplier. Confirm contract values and assess likely levels of employment directly attributable to the management of the site, maintenance of equipment and provision of services. • Review procurement procedures to confirm which contracts, sub-contracts or component supplies could have been secured by UK and regional companies given more competitive tenders. Identify criteria for contracting procedures and review likely alternatives available to industry now and in the future as the industry matures. Assess the effect of alternative contractual frameworks on levels of UK and regional penetration of the supply chain. • Assess the relative value and employment characteristics of supply chain gaps against known national and regional capabilities. Provide a list of the areas within the supply chain which offer the greatest opportunity for future UK participation and assess the possible strategies of business development and support required to realise these opportunities. • Consider scale-up effects, in terms of overall contract values and employment, of moving from Scroby Sands scale offshore wind projects to a typical Round 2 site of 500 MW. Identify and review likely logistical and contractual changes that are expected to occur to permit commercial development of such sites and provide high level assessment of the effect on UK supply chain capabilities. Assess what additional intervention strategies in July 2005 12 Douglas-Westwood Limited & ODE Ltd
  • 13. Scroby Sands – Supply Chain Analysis Final Report the form of business support, strategic investment or other public sector activity may be required to secure UK and regional participation in the supply chain. 2.3 Project Deliverables The following project deliverables were agreed: • Contract hierarchy for each phase of development with relevant contract values, employment levels and level of regional and UK-wide participation. • Contract hierarchy for the construction phase of Scroby Sands with maximum credible UK and regional involvement including relevant contract values and employment levels. Alternative contract hierarchies identified with assessment of the effect on UK supply chain. • Assessment of the role of Operation and Maintenance (O&M) in terms of value, working hours and likely future changes to O&M contracting. Scroby Sands is currently operated by Vestas under a five-year warranty contract, currently the standard procedure for offshore projects. O&M is an especially important area of local content. • Assessment of lessons learnt from this Round 1 site and creation of an action plan as to how best to realise the missed opportunities. The unrealised opportunities will be arranged according to understood capacity for national and regional businesses to meet the opportunities, reflecting the relative value of the activity, and the time and skills required to develop the necessary capability. • Future lines of research including specific projects designed to identify the most advantageous level of strategic investment and intervention by the public sector to support the growing UK supply chain. The value of comparative studies to be conducted on other UK offshore projects already completed or nearing construction. 2.4 Methodology The supply chain analysis for Scroby Sands has been undertaken by Renewables East in partnership with Offshore Design Engineering Limited (ODE) & Douglas-Westwood Limited (DWL). The majority of primary data collection and supply chain contract mapping was carried out by Offshore Design Engineering Limited, who acted as Project Managers for EROWL in the construction of the Scroby Sands project and are site manager for EROWL during the operational phase whilst the turbines are under warranty. Douglas-Westwood Limited undertook an independent verification of data and comparative analysis against previous research. Analysis of anticipated and potential UK penetration of the supply chain for future Round 2 projects including mechanisms to better target supply chain development and UK business support was undertaken jointly between all three parties. 2.4.1 Project Data It was recognised from the outset that previous studies forecasting the potential revenue and employment generation of offshore wind farms had been based on the predicted development of offshore wind farms and were estimates that were unable to draw upon actual historic information. The principal aim of the data gathering exercise was therefore to ascertain the actual value and associated man-hours within the development, construction and operation of Scroby Sands. The process of data gathering involved the mapping of Tier 3 services and supply, including associated contracts, subcontracts and in-house services, during all phases of the project. The main suppliers of project data were EROWL (the owner) and Vestas Celtic (the EPIC contractor) who were asked to complete a standard form (see Appendix 1) specifically designed to collect the targeted information and ensure that all data was captured in a consistent and comparative manner. With the provision of actual contract value and associated man-hours to Tier 3 of the project and supply chain, the data could then be used as a sound basis for analysis and comparative forecasting of July 2005 13 Douglas-Westwood Limited & ODE Ltd
  • 14. Scroby Sands – Supply Chain Analysis Final Report future expenditure and man-hours relating to further wind farms forecast for development offshore UK. 2.4.2 Definitions In mapping the supply chain to Scroby Sands it was initially necessary to define the key activities in developing, constructing and operating the project, down to Tier 3 service and component supply. In developing the project’s contract hierarchy 14 Tier 1 Categories were created encompassing all activities within the lifecycle of an offshore wind farm, in line with activities defined within the Category of Energy Industry Classifications (see Appendix 2) and used to define East of England offshore wind capability as part of DWL’s ongoing work on the POWER project (see Section 1.5.1). Key Sub-Component items were then defined in partnership with Vestas and E.ON according to their internal accounting procedures. Development Phase Table 2-1: Development Phase – Component Items Tier 1 Category Sub-Component Item Development Design Consultancy Development Agreement Electrical System Studies FEPA License Application Section 36 Planning Application Site Management Staff Costs Environmental Monitoring Environmental Surveys Insurance/Legal Insurance Legal Fees Surveys Geotechnical Survey / Investigation Site Surveys Other Misc Costs Reprographics The development phase has been defined as being all activities completed in identifying, technically and environmentally assessing, insuring and licensing the project site through to project implementation and, in this case, the appointment of an EPIC contractor (assumes an EPIC type development). Construction Phase Table 2-2: Construction Phase – Component Items Tier 1 Category Sub-Component Item Environmental Monitoring Surveys - Arial, Bird & Coastal Bird Protection Environmental Management Noise Monitoring Insurance/Legal Construction Insurance Legal / Easements Site Inspection Surveys Site Surveys Project Management Board & Lodging HSE Site Rep Offshore Installation Onshore Logistics Planning Supervisor Project Administration Quality Assurance Detailed Design Electrical Foundation SCADA Scour Surveys July 2005 14 Douglas-Westwood Limited & ODE Ltd
  • 15. Scroby Sands – Supply Chain Analysis Final Report Procurement & Manufacture Blades Cables Logistic Support Monopiles Nacelle Onshore Cable Supply Towers Transport & Delivery Blades Facility - Harbour Harbour Dues Nacelles Parts Surveys Towers Onshore Pre-Assembly Blade Handling Cranes Labour Onshore Equipment Quay Rental Site Transport Onshore Installation Onshore Cable Installation Substation / Grid Interface Offshore Installation Export Cables Inter Array Cables Piles Scour Protection Turbines Commissioning Senior Authorised Personnel Super Intendents Transfer Vessels Weather Forecasts Other Misc Costs Information Centre Building Works Project Film/Photography Training Visitor Centre Design & Fit Out The construction phase covers all supply chain activities relating to the contracting, financing, and procurement of all materials for the production, assembly and installation of all elements of the project. Key activities include the manufacture of components associated with the turbine, its foundation and any electrical equipment required to connect the facility to electricity infrastructure onshore, onshore and offshore installation activities and logistics at the construction port. Operations The operations phase covers all supplies of goods and services necessary to operate, maintain and repair offshore wind facilities during their asset life. In the context of this study, the Operations phase has been assessed over the first 5 years of the asset life of the project to correlate to the warranty and service provisions of Vestas Celtic. Table 2-3: Operations Phase – Component Items Tier 1 Category Sub-Component Item Operations & Maintenance Project Management Site Management Service Personnel Service Vessels Replacement Components Other Operational Costs July 2005 15 Douglas-Westwood Limited & ODE Ltd
  • 16. Scroby Sands – Supply Chain Analysis Final Report 2.5 Related Studies There are two regional studies directly related to the Scroby Sands - Supply Chain Analysis project which Douglas-Westwood Ltd have conducted in 2005; the POWER project and the Catalogue of Energy Industry Classifications. 2.5.1 POWER – WP2 Regional Supply Chain Study The POWER (Pushing Offshore Wind Energy Regions) project is a three year European supply chain study as part of the Interreg IIIB North Sea Programme, and funded by the European Regional Development Fund. The project will discuss and assess issues relating to the environmental impact of offshore wind farms, the development of a reliable, economically beneficial regional supply chain and skills development issues. Studies are being undertaken in Denmark, Germany, the Netherlands and UK, with the aim of uniting North Sea regions with an interest in supporting and realising the economic and technological potentials of offshore wind energy. Work Package 2 (WP2) of the POWER project focuses on the supply chain and economic development in the offshore wind sector within regions with the ambition and opportunity to benefit economically from the evolving offshore wind energy industry. Under this work package Douglas- Westwood Ltd were commissioned to undertake a regional study to inform the East of England and particularly the sub-region of Great Yarmouth and Lowestoft on specific strengths and gaps within their supply chain to the offshore wind sector, and facilitate the development of strategies supporting supply chain development. This study was completed in June 2005 for Suffolk County Council. The aims of the study were to: • Establish the total value and likely level of regional content, both in terms of expenditure and employment, regarding offshore wind development in the East of England to date and develop a forecast for the future if the present situation were to continue. • Determine which local companies are active or plan to be active as suppliers to the offshore wind sector with regard to manufacturing, installation, operation, and maintenance, training and research. • Develop a market compatibility matrix to show regional capabilities. • Assess how the benefits to the region may increase through changes to the supply chain aimed at filling existing gaps. • Produce recommendations for specific targeted actions for the further development of the offshore wind supply chain within the East of England. 2.5.2 Catalogue of Energy Industry Classifications This study was commissioned by the EEEGR and completed by DWL in December 2004. The project required the creation of a “pragmatic” coding system to be applied to all companies identified, or seeking, to be working within the supply chain to the energy industry. The framework created will act as a means of facilitating the identification of specific capabilities of companies servicing one or more sectors and enable the effective segmentation of the industry. This is to be achieved through the creation of three independent, relational datasets, structured as a keyword listing based on a maximum of 150 categories, with each dataset to be supplemented by a glossary defining keywords where appropriate. The three independent relational datasets are; 1. Industry Sectors – Oil & Gas, Wind, Solar, Nuclear, etc 2. Industry Roles – Operator, Service Provider, Support Organisation, etc 3. Industry Classification – Drilling & Wells, Installation & Commissioning, etc The coding system will be supplemented by suggestions of the key industry metrics that should be recorded within supporting databases to facilitate attempts to perform a consistent and repeatable analysis of the nature and scale of activity within any supply chain to the energy industry (full details of which are available from EEEGR upon request). Having established an appropriate framework of use the catalogue of categories will then be integrated into EEEGR’s ‘Mapergy’ system and made available to all POWER project partners as a means of providing a common terminology in completing their country specific supply chain studies. It July 2005 16 Douglas-Westwood Limited & ODE Ltd
  • 17. Scroby Sands – Supply Chain Analysis Final Report is also envisaged that such a system will be complementary to work being developed to better identify skills sets against the capabilities of the industry. July 2005 17 Douglas-Westwood Limited & ODE Ltd
  • 18. Scroby Sands – Supply Chain Analysis Final Report July 2005 18 Douglas-Westwood Limited & ODE Ltd
  • 19. Scroby Sands – Supply Chain Analysis Final Report 3 MARKET TRENDS 3.1 World Offshore Wind 2000-2009 3.1.1 Development History The first offshore wind turbines were installed at Vindeby off the Danish island of Lolland in 1991. The first ten years of the industry saw small projects being built in very shallow water near-shore locations. These wind farms, in most cases, used onshore turbine models with slight adaptations. These ‘demonstration’ projects have paved the way for the more recent projects that are of a much larger size. There are currently 19 operational offshore wind farms in the world. The 327 installed turbines in these projects provide a total of 617 MW. At the present time, Denmark is the world leader in installed capacity with 426 MW, but the UK is making fast progress and now has 124 MW operational with a further 180 MW to be online before the end of 2005 from the 90 MW Kentish Flats and Barrow offshore wind farms currently under construction. Europe’s onshore wind industry experience and supply chain coupled with excellent natural resource and supportive government policies make the region the clear leader offshore. Recent activity in South East Asia marked the first offshore wind development outside Europe, with North America expected to install its first offshore turbines this period. The largest installed offshore wind farm is the 165.6 MW Nysted development off Denmark which was completed in 2003. It has 72 2.3 MW Bonus (now Siemens Wind Power) turbines installed 9 km offshore in an average water depth of 8 metres. To date, the greatest water depth that a project has been installed in is 18 metres (Samsø, Denmark). Just as today’s projects dwarf those built ten years previously, within another decade projects will be installed that are many times greater in size than today’s offshore wind farms and that will be built in substantially deeper locations, further offshore. 3.1.2 Future Activity 3500 Belgium Canada China 3000 Denmark Finland France Germany 2500 Ireland Japan Netherlands Capacity MW Spain 2000 Sweden UK USA 1500 1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 July 2005 19 Douglas-Westwood Limited & ODE Ltd
  • 20. Scroby Sands – Supply Chain Analysis Final Report Figure 3-1: World Offshore Wind Capacity 2000-2009 (MW) Table 3-1: World Offshore Wind Capacity 2000-2009 (MW) Country 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2005-2009 Belgium 42 145 130 316 Canada 4 700 704 China 50 100 150 Denmark 40 163 213 200 200 400 Finland 5 104 109 France 29 29 Germany 4.5 4.5 198 384 438 771 1,797 Ireland 25 167 190 356 Japan 1.2 0 Netherlands 99 120 219 Spain 250 250 Sweden 21 125 142 18 285 UK 4 0 0 60 60 180 270 424 668 1655 3,197 USA 468 140 2 610 Grand Total 4 61 163 299 66 184.5 738 1,934 2,397 3,168 8,421 A total of 8.4 GW of offshore wind capacity is forecast for installation over the period to 2009. Progress was slow in 2004, with many delays pushing back installation schedules for projects off the UK, Belgium and the Netherlands. With only 66 MW coming online, it was the quietest year since 2001. 2004, however, did see Germany’s first installation and interestingly the first offshore wind turbines being installed outside Europe. In 2005, installations increase with 180 MW forecast for completion. This will all be off the UK where two 90 MW projects are scheduled for commissioning before the year’s end. The rate of installations is forecast to increase dramatically from there on, with 738 MW expected to be commissioned in 2006. The first commercial German wind farm is expected to be brought online in 2006 as will the first Belgian, Swedish and Dutch projects. This growth is continued into 2007 when 1.9 GW is forecast. The UK, Germany and Belgium will all build on their progress in 2006. The first US project, Cape Wind, is scheduled for a 2007 completion, although the ongoing planning and political disputes has made this project one of the most unpredictable at present. Sufficient progress was, however, made through 2004 for us to include the project in the 2007 season. The first Chinese project will also be commissioned in 2007. The leading players will see increasingly higher amounts of capacity installed to the end of the period, with the UK and Germany building dominating positions in the industry. 2008 is significant because it marks Denmark’s re-entry to the market it once led so strongly. The 200 MW Horns Rev II wind farm will be built in 2008 and the Nysted II project will follow in 2009. The last two years of the period sees countries such as Finland and Spain entering with their first major developments. The UK is forecast to have one third of all capacity installed over the next five years, illustrating the steady progress made by UK projects. Here, few projects have been cancelled, and the route to construction is more clear-cut than in other countries where a joined-up approach is lacking from the authorities. Germany has a 21% share of installations, less than was expected just one year ago. Slow progress on the necessary cable permits is one factor that is holding back projects from construction. There is no doubting the importance of the German market, but it is taking much longer to reach fruition than previously thought. The installation of the 4.5 MW Enercon turbine in 2004 is a promising signal. A second 4.5 MW turbine is expected online in the summer of 2005. Denmark currently has 69% of all installed offshore wind capacity so it is disappointing that it has only 5% of the 2005-2009 capacity in prospect. Regionally, North America has a total of 16% of the market and this comes from relatively few projects. In comparison to the large European market (82% of all capacity) this is small, but it is a significant share and one that will be built upon in the future as the market grows in response to the successes seen both in Europe and the early projects off the USA. July 2005 20 Douglas-Westwood Limited & ODE Ltd
  • 21. Scroby Sands – Supply Chain Analysis Final Report Asia is only a small market at present (2% of all capacity 2005-2009) but in the longer-term has good prospects. Onshore wind has experienced dramatic levels of growth in countries such as China and offshore developments are expected in a number of Asian countries in the future. 3.2 UK Offshore Wind With the award of licences to develop offshore wind energy, the UK has created one of the world’s largest current market places for the deployment of marine renewable technology. With billions of pounds worth of capital required to realise over 7 GW of electrical capacity, a significant opportunity has been presented to develop a strong UK supply chain supporting this emerging industry. The maturation of the industry over the next five years, moving from the construction of Round 1 projects with 30 turbines in relatively shallow waters close to the coast, to Round 2 projects with hundreds of turbines close to or beyond the 12 nautical mile territorial limit, will also directly affect the opportunities open to UK companies. Project supply chains and principal contractors will be faced with increased logistical demands, growing contractual risks, and pressure on available equipment supplies being countered by opportunities for economies of scale and innovations in equipment design and construction processes. 3500 3000 2500 Capacity MW 2000 1500 1000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Figure 3-2: UK Offshore Wind Capacity 2004-2012 (MW) Table 3-2: UK Offshore Wind Capacity 2004-2012 (MW) MW 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-2012 UK 60 180 270 424 668 1,655 3,315 1,367 2,200 10,079 The UK is forecast to have the greatest level of activity in offshore wind in the world for mid-term future surpassing more established markets such as Denmark and beating Germany to large-scale offshore wind development. A total of over 10 GW is in prospect for the UK which would result in over £11 billion of expenditure. Post 2008, the UK market will be worth in excess of £1 billion per year. From 2008 the Round 2 projects off the UK dramatically boost the market and this strong growth will continue into the next decade. Table 3-3: UK & East of England Projects 2004-2013 – Units 2004- Projects 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 E of E 1 1 2 2 1 4 6 2 1 19 Other UK 1 1 3 4 2 3 1 1 16 Total 1 2 3 5 5 6 9 3 1 1 35 A total of 35 projects are planned in the UK, with 19 of these being within the East of England’s area of influence. Note that some of these projects are developments with multiple phases such as London Array. July 2005 21 Douglas-Westwood Limited & ODE Ltd
  • 22. Scroby Sands – Supply Chain Analysis Final Report 4000 £m 3000 2000 1000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Figure 3-3: UK Offshore Wind Capital Expenditure 2040-2012 (£m) Table 3-4: UK Offshore Wind Capital Expenditure 2004-2012 (£m) £m 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-2012 UK 75 225 363 529 819 1,824 3,646 1,504 2,420 11,330 3.3 East of England Offshore Wind 2000 1500 Capacity MW 1000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Figure 3-4: East of England Potential Capacity 2004-2012 (MW) Table 3-5: East of England Potential Capacity 2004-2012 (MW) MW 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-2012 E of E 60 90 180 216 64 1,165 2,173 867 1,200 5,955 The charts and text above present the total potential of offshore wind in the East of England for all Round 1 and Round 2 projects. This assumes all projects scheduled go ahead as planned. For the purpose of this study all projects in the Thames Estuary and the Greater Wash are being considered to fall within the East of England’s area of influence. Although in some cases the locations of the planned projects in these two areas are some distance from the defined East of England region (Bedfordshire, Cambridgeshire, Essex, Hertfordshire, Norfolk and Suffolk), East of England companies will be tendering for contracts for these projects and the region’s ports are suited to the requisite construction work. July 2005 22 Douglas-Westwood Limited & ODE Ltd
  • 23. Scroby Sands – Supply Chain Analysis Final Report The East of England has access to a total of 5,955 MW of capacity planned which will come from approximately 1,700 turbines. The capacity is allocated to the developers’ target completion date for their project. Wind farm capacity has not been split across multiple years unless official project phases have been announced. This results in an extremely high jump in installations from 2009 when the second round projects begin construction. The constraining factors on the above project capacities will be examined in more detail within the report but include the projects gaining planning approval, grid capacity, restructuring, new legislation to allow projects beyond the 12-mile nautical limit to be developed, sufficient turbine and foundation manufacturing capability, installation vessel availability, and most importantly, continued governmental support. These factors could result in project delays and even cancellations. The potential capacity shown above and potential expenditure shown below are, therefore, best-case scenarios. 2000 1500 £m 1000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Figure 3-5: East of England Potential Capital Expenditure 2004-2012 (£m) Table 3-6: East of England Potential Capital Expenditure 2004-2012 (£m) £m 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-2012 E of E 75 113 250 270 70 1,285 2,390 954 1,320 6,652 Total capital expenditure relating to the development and construction of regional projects could amount to as much as £6.7 billion. This assumes all projects reach construction. Again, the timing of the projects is based on developers’ announced timescales. July 2005 23 Douglas-Westwood Limited & ODE Ltd
  • 24. Table 3-7: East of England – Offshore Wind Farms Operational & Planned 2004-2012 Project Name Developer Location Target Online MW Turbines Scroby Sands EROWL off Caister, Great Yarmouth 2004 60 30 Kentish Flats GREP off Whitstable, North Kent 2005 90 30 Inner Dowsing Centrica with RES off Ingoldmells, Skegness 2006 90-108 30 Lynn Centrica off Skegness on Boulders Bank, Lincs 2006 90-108 30 Gunfleet Sands GE Wind off Clacton-on-Sea, Essex 2007 108 30 Cromer EDF off Mundesley, Norfolk 2007 90-108 30 Gunfleet Sands phase II GE Wind off Clacton on Sea, Essex, Thames Estuary 2008 64 16 Humber Gateway United Utilities and GREP off Spurn Head, Greater Wash 2009 300 60-100 Lincs (Inner Dowsing II) Centrica with RES off Skegness, Greater Wash 2009 250 50-83 London Array – (LAWL) P.1 EROWL and Core (Energi E2 & FarmEnergy) Thames Estuary, London 2009 300 100 Sheringham Shoal Scira Offshore Energy (Ecoventures & SLP) off Cromer, Greater Wash 2009 315 63-105 Greater Gabbard Airtricity and Fluor off Orfod, Thames Estuary 2010 500 139 Dudgeon East Warwick Energy off Cromer, Greater Wash 2010 300 60-100 London Array – Shell Shell Thames Estuary, London 2010 333 111 Thanet Warwick Energy off North Foreland, Kent, Thames Estuary 2010 300 60-100 Westernmost Rough Total off Aldbrough, Holderness, Greater Wash 2010 240 60-80 Docking Shoal Centrica with Amec off Skegness/Hunstanton, Greater Wash 2010 500 100-125 London Array – (LAWL) P.2 EROWL and Core (Energi E2 & FarmEnergy) Thames Estuary, London 2011 367 122 Race Bank Centrica with Amec off Skegness/Hunstanton, Greater Wash 2011 500 100-125 Triton Knoll Npower Renewables off Mablethorpe, Greater Wash 2012 1,200 240-300 The above table provides basic details of the projects in the East of England. To date the region has one operational project – Scroby Sands – which was completed in 2004. 24
  • 25. Scroby Sands – Supply Chain Analysis Final Report 4 SCROBY SANDS The Scroby Sands offshore wind farm, located an average of 3 km off Caister, was developed by EROWL (formerly Powergen Renewables Offshore Wind Ltd). The potential for an offshore wind farm site was first investigated in 1995 with government approval given in April 2002. Planning approval was granted for 76 MW in spring 2002. Table 4-1: Scroby Sands – Project Data Scroby Sands 3 km off Caister, EROWL Location Developer Norfolk Construction 2003 Owner/Operator EROWL Online 2004 EPC Vestas Capacity (MW) 60 Turbine Installation A2Sea & Seacore Number of Turbines 30 Foundation Installation Mammoet Van Oord Turbine Manufacturer Vestas Total Cost (£m) 80 (inc. 5 yrs O&M) Turbine Rating (MW) 2 Planning Status Complete Foundation Type Monopiles Contracting Status Complete Water Depth (m) 2-10 EROWL were originally planning construction in 2003 and remained confident this could be achieved when the invitation to tender for the EPIC contract was issued in June 2002, even though contractors had only six weeks to complete bids for the work. Those bidding included Vestas, Mammoet Van Oord, Mayflower Energy/JB Hydrocarbons, A2Sea, SLP/Bouygues and Mowlem/HydroSoil. EROWL postponed the 2003 offshore construction target to a more realistically achievable 2004, and called for revised bids to be submitted. Vestas had been the firm favourite for the job having been a joint venture partner in Scroby since 1995 and in February 2003 they won the EPIC contract for all the offshore facilities and confirmed the project was to use 30 V-80 2 MW turbines. The contract included responsibility for operation and maintenance on the site over five years. The first subcontract to be issued by Vestas was to Halliburton KBR to project manage the development on its behalf, while EROWL employed its own project manager, Offshore Design Engineering (ODE), on a 20-month contract valued at around £750,000. ODE were responsible for the management and co-ordination of all aspects of the engineering, manufacture and installation of the development. In May 2003 Cambrian Engineering were awarded the contract for the supply of 16 piles, with Isleburn Mackay and Macleod winning a contract to supply the remaining 14 piles and approximately 700 tonnes of additional steelwork. The foundations were installed by Mammoet Van Oord’s newbuild vessel Jumping Jack, between October 2003 and January 2004. CNS Subsea installed the infield and export offshore cables, which were sourced from AEI Cables, while Nacap UK installed the onshore cables, supplied by Pirelli Cable Limited, over the period October 2003 to February 2004. EROWL also contracted EDF (formerly 24-7) for the onshore grid connection and have on ongoing consultancy contract with Econnect. Turbines were assembled at Vestas’ factory at Campeltown with A2Sea being awarded the turbine installation contract in February 2004 which was completed by their Ocean Ady vessel. Seacore were also contracted to install six of the turbines in the shallowest water locations. The turbines/blades were pre-assembled by Vestas Celtic at SLP Engineering’s Lowestoft yard. All turbines were installed by the beginning of June 2004, with a total installation time of 68 days (A2Sea installed 24 turbines in 50 days). The first of the turbines began production on the 20th July 2004, however, bad weather hampered commissioning efforts which meant that all turbines did not complete initial commissioning until the end of October 2004. High winds continued to slow work in November, but all reliability testing was completed by the end of November and after testing was completed all the turbines were online together for the first time on the 14th December 2004, with commercial completion being 31st December 2004. June 2005 25 Douglas-Westwood Ltd & ODE Ltd
  • 26. Scroby Sands – Supply Chain Analysis Final Report In August 2004 the £500,000 operations centre was opened in Great Yarmouth, providing the service back- up for the wind farm which Vestas are providing under warranty. The development was formally opened on the 22nd March 2005. 4.1 Contract Hierarchy The following tables represent the overall project value and associated man-hours broken down by the key project stages of development, construction and operations. The development and construction data being actual historic data obtained from source, whilst the operations data is a prediction for the first five years of operation. Table 4-2: Scroby Sands – Value by Phase (£’000s) £’000s East of England Other UK Non UK Total UK % Development 335 922 480 1,737 72% Construction 7,415 24,485 39,611 71,511 45% Operations 5,095 550 1,180 6,825 83% Total 12,845 25,957 41,217 80,073 48% Table 4-3: Scroby Sands – Hours by Phase Hours East of England Other UK Non UK Total UK % Development 5,189 15,974 8,000 29,163 73% Construction 130,050 193,680 139,446 463,176 70% Operations 124,160 10,715 28,855 163,730 82% Total 259,399 220,369 176,301 656,069 73% One of the major concerns regarding the offshore wind industry is that non-UK installation contractors will install non-UK equipment, such that minimal benefit will be gained by UK and regional economies. However, an analysis of the contract hierarchy to Scroby Sands shows a high level of actual UK and East of England content, which clearly proves that high UK and regional content can be achieved and as such sets a benchmark against which other projects can be measured. When analysed by value, the level of East of England and East of other UK content is very good, however, when expressed as man-hours these percentages increase considerably. The England fundamental reason for this differential being that a high 16% proportion of the non-UK value is associated with major component supply and installation vessel contractors, which by their very nature have a low man-hour content relative to actual contract value. Non-UK 52% Other UK 32% Figure 4-1: Scroby Sands – £’000s June 2005 26 Douglas-Westwood Ltd & ODE Ltd
  • 27. Scroby Sands – Supply Chain Analysis Final Report 50,000 Non-UK Other UK 40,000 East of England Expenditure £'000s 30,000 20,000 10,000 0 Annual O&M Surveys Transport & Management Procurement & Onshore Pre- Other Costs Installation Installation Development Environmental Insurance/Legal Detailed Design Manufacture Onshore Offshore Commissioning Delivery Monitoring Assembly Design Project Figure 4-2: Scroby Sands – Value by Tier 1 Category (£’000s) Table 4-4: Scroby Sands –Value by Tier 1 Category (£’000s ) £’000s East of England Other UK Non UK Total UK % Development Design 149 780 480 1,409 66% Environmental Monitoring 162 28 0 190 100% Insurance/Legal 211 1,568 0 1,779 100% Surveys 248 12 0 260 100% Project Management 2,201 2,175 175 4,551 96% Detailed Design 180 156 775 1,111 30% Procurement & Manufacture 8 16,821 22,158 38,986 43% Transport & Delivery 55 235 935 1,225 24% Onshore Pre-Assembly 1,614 230 356 2,200 84% Onshore Installation 1,825 0 0 1,825 100% Offshore Installation 283 1,940 14,478 16,700 13% Commissioning 613 978 585 2,175 73% Operations & Maintenance 5,095 550 1180 6,825 83% Other Misc. Costs 202 486 150 838 82% Total 12,844 25,957 41,271 80,073 48% 180,000 Non-UK 160,000 Other UK 140,000 East of England 120,000 100,000 Hours 80,000 60,000 40,000 20,000 0 Annual O&M Surveys Development Environmental Transport & Management Procurement & Onshore Pre- Other Costs Insurance/Legal Installation Installation Detailed Design Offshore Commissioning Manufacture Onshore Delivery Monitoring Assembly Project Design Figure 4-3: Scroby Sands – Hours by Tier 1 Category June 2005 27 Douglas-Westwood Ltd & ODE Ltd
  • 28. Scroby Sands – Supply Chain Analysis Final Report Table 4-5: Scroby Sands – Hours by Tier 1 Category Hours East of England Other UK Non UK Total UK % Development Design 3,268 14,485 8,000 25,752 69% Environmental Monitoring 2,860 277 0 3,137 100% Insurance/Legal 400 1,633 0 2,033 100% Surveys 2,479 119 0 2,598 100% Project Management 35,875 50,250 4,375 90,500 95% Detailed Design 4,500 3,758 19,375 27,633 30% Procurement & Manufacture 200 94,019 39,261 133,479 71% Transport & Delivery 400 1,500 4,500 6,400 30% Onshore Pre-Assembly 24,281 8,422 4,847 37,549 87% Onshore Installation 34,375 0 0 34,375 100% Offshore Installation 5,400 16,560 49,500 71,460 31% Commissioning 17,500 12,072 13,304 42,875 69% Operations & Maintenance 124,160 10,715 28,855 163,730 82% Other Misc. Costs 3,702 6,561 4,286 14,548 71% Total 259,399 220,369 176,301 656,069 73% 4.1.1 Development This section of the report presents the value and derived man-hours associated with the initial development work that preceded project implementation. The supporting data for this phase was entirely supplied by EROWL. Table 4-6: Scroby Sands – Development Phase Value (£’000s) £’000s East of England Other UK Non UK Total Development Design 149 780 480 1,409 Environmental Monitoring 25 6 0 30 Insurance/Legal 0 33 0 33 Surveys 161 12 0 173 Other Misc. Costs 0 92 0 92 Total 335 922 480 1,737 Table 4-7: Scroby Sands – Development Phase Hours Hours East of England Other UK Non UK Total Development Design 3,268 14,485 8,000 25,752 Environmental Monitoring 309 55 0 364 Insurance/Legal 0 235 0 235 Surveys 1,613 119 0 1,732 Other Misc. Costs 0 1,080 0 1,080 Total 5,189 15,974 8,000 29,163 The development phase ran for several years with the latter stages of the development incorporating input from Vestas Celtic. The majority of value and derived man-hours were expended during the development design, which was predominantly carried out by EROWL and Vestas Celtic. However, there was still significant expenditure with various consulting/contracting organisations, many of which are based in the East of England, providing a diverse range of services such as consultancy, specialist surveys and environmental investigations. Whilst it is unlikely that any of this work actually resulted in the creation of any new jobs, the overall man-hour expenditure is the equivalent of 15 man-years of work. Which when extrapolated up to reflect the overall man-hours associated with the various forecast developments, will certainly mean that opportunities for job creation will exist in the future. 4.1.2 Construction Although significant value and derived man-hours were associated with the development phase the vast majority of project expenditure occurred during the construction phase of the project (which has been defined as including all detailed design, manufacture, installation and associated costs). The implementation of this phase of the project was initiated in 2003 and undertaken over the subsequent 2-year period, with various contracts being awarded by EROWL and tier 2 and 3 contracts awarded through their major contractor Vestas Celtic. June 2005 28 Douglas-Westwood Ltd & ODE Ltd
  • 29. Scroby Sands – Supply Chain Analysis Final Report Table 4-8: Scroby Sands – Construction Phase Value (£’000s) £’000s East of England Other UK Non UK Total Environmental Monitoring 138 22 0 160 Insurance/Legal 211 1,536 0 1,747 Surveys 87 0 0 87 Project Management 2,201 2,175 175 4,551 Detailed Design 180 156 775 1,111 Procurement & Manufacture 8 16,821 22,158 38,986 Transport & Delivery 55 235 935 1,225 Onshore Pre-Assembly 1,614 230 356 2,200 Onshore Installation 1,825 0 0 1,825 Offshore Installation 283 1,940 14,478 16,700 Commissioning 613 978 585 2,175 Other Misc. Costs 202 393 150 745 Total 7,415 24,485 39,611 71,511 Table 4-9: Scroby Sands – Construction Phase Component Value (£’000s) £’000s East of England Other UK Non UK Total Blades 125 0 6,325 6,450 Cables 1,463 4,242 2,923 8,627 Grid Interface 645 0 0 645 Nacelles 994 1,875 19,306 22,175 Piles 210 9,555 9,800 19,565 Towers 0 4,425 350 4,775 Indirect Costs 3,979 4,388 908 9,274 Total 7,415 24,485 39,611 71,511 Table 4-10: Scroby Sands – Construction Phase Hours Hours East of England Other UK Non UK Total Environmental Monitoring 2,551 222 0 2,773 Insurance/Legal 400 1,398 0 1,798 Surveys 866 0 0 866 Project Management 35,875 50,250 4,375 90,500 Detailed Design 4,500 3,758 19,375 27,633 Procurement & Manufacture 200 94,019 39,261 133,479 Transport & Delivery 400 1,500 4,500 6,400 Onshore Pre-Assembly 24,281 8,422 4,847 37,549 Onshore Installation 34,375 0 0 34,375 Offshore Installation 5,400 16,560 49,500 71,460 Commissioning 17,500 12,072 13,304 42,875 Other Misc. Costs 3,702 5,481 4,286 13,468 Total 130,050 193,680 139,446 463,176 June 2005 29 Douglas-Westwood Ltd & ODE Ltd
  • 30. Scroby Sands – Supply Chain Analysis Final Report Table 4-11: Scroby Sands – Component Construction Hours Hours East of England Other UK Non UK Total Blades 1,125 0 10,765 11,890 Cables 34,400 27,758 30,325 92,483 Grid Interface 5,375 0 0 5,375 Nacelles 26,299 21,308 48,429 96,035 Piles 4,400 55,850 28,660 88,910 Towers 0 29,214 3,250 32,464 Indirect Costs 58,451 59,551 18,017 136,019 Total 130,050 193,680 139,446 463,176 The decision that the wind farm was to be wholly serviced locally throughout the construction phase was a major contributing factor to the high level of UK and specifically East of England involvement. East of England companies were also awarded key contracts such as the overall project management, onshore cable installation and grid interface. Environmental Monitoring 100,000 Insurance/Legal Surveys 90,000 Project Management 80,000 Detailed Design Procurement & Manufacture Manhours per quarter 70,000 Transport & Delivery Onshore Pre-Assembly 60,000 Onshore Installation 50,000 Offshore Installation 40,000 Commissioning Operations & Maintenance 30,000 Other Misc. Costs 20,000 10,000 0 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Figure 4-4: Scroby Sands Construction & Operation Timeline - Manhours The overall man-hours accrued within the East of England alone resulted in the equivalent of some 65 man-years of work. Or spread over the 2 years of construction phase, this equates to the equivalent of 32 jobs. Again, as with the Development Phase, it is difficult to assess how many jobs were actually created due to this work. But what is certain is that it represents a significant injection of revenue generation into the local economy, which will definitely be increased on a proportional basis when the next series of wind farms enter their construction phases. 4.1.3 Operation The operational phase of the project commenced at the beginning of 2005. Estimates of the value and derived man-hours associated with Scroby Sands have been given for the first five years of operation. Table 4-12: Scroby Sands – 5 Year Operations Value (£’000s) & Hours Operations East of England Other UK Non UK Total £’000s 5,095 550 1,180 6,825 Hours 124,160 10,715 28,855 163,730 The operational phase is expected to generate the equivalent of 16 man years of work each year, with the majority of this being employment based in the East of England. The majority of this work will be within the Vestas Celtic operations and maintenance contract where approximately 10 new, permanent jobs have been created. This will be further supplemented by the ongoing involvement of Offshore Design Engineering Limited as the site management contractor and the use of various local survey and support companies throughout the local supply chain. Operations and maintenance is a core work-package within which the UK and the East of England can potentially achieve a consistently high level of domestic and local content. With turbine manufacturers June 2005 30 Douglas-Westwood Ltd & ODE Ltd
  • 31. Scroby Sands – Supply Chain Analysis Final Report likely to be responsible for a 5 year warranty for all offshore wind developments it is important for the region to ensure this work is based locally. 4.2 UK Content The level of UK content for Scroby Sands is considered to be relatively high and sets a benchmark for future projects. It is important for comparative studies to be undertaken on existing and forthcoming UK projects to confirm these findings and to discover key features of Scroby Sands that can be replicated in the future. National content is well distributed across the full spectrum of the developmental, construction and operational works, however there are notable exceptions within offshore installation and procurement and manufacturing where UK companies did not secure contracts either because they were not cost competitive or because such capability is not present in the UK. However, there are areas of significant success in these areas, with the pile and fender supply for instance being undertaken by Scottish companies Cambrian Engineering and Isleburn McKay & McLeod. Also, not all the vessel supply was by non-UK companies, a particular example being Seacore who provided the vessel Excalibur for some of the topsides (tower, nacelle and blades) installation. Vestas Celtic were able to achieve a high level of UK and regional content on the Scroby Sands project through their role in procurement and manufacturing. This is an exception to what may happen for other manufacturers as Vestas are currently the only major turbine supplier to establish assembly plant in UK. Vestas is currently the only manufacturer that has got operational turbines on UK offshore projects, with Scroby Sands and North Hoyle using 2 MW machines, and the forthcoming Kentish Flats and Barrow projects installing 3 MW turbines in the summer of 2005. Vestas is, therefore, a major contributor to UK content in offshore wind and plays a major role in helping to drive the UK industry. Table 4-13: Scroby Sands – UK Content Value (£’000s) £’000s Development Construction Operations UK Total Total Development Design 929 929 1,409 Environmental Monitoring 30 160 190 190 Insurance/Legal 33 1,747 1,779 1,779 Surveys 173 87 260 260 Project Management 4,376 4,376 4,551 Detailed Design 336 336 1,111 Procurement & Manufacture 16,829 16,829 38,400 Transport & Delivery 290 290 1,225 Onshore Pre-Assembly 1,844 1,844 2,200 Onshore Installation 1,825 1,825 2,411 Offshore Installation 2,223 2,223 16,700 Commissioning 1,590 1,590 2,175 Operations & Maintenance 5,645 5,645 6825 Other Misc. Costs 92 595 688 838 UK Total 1,257 31,900 5,645 38,802 Total 1,737 71,511 6,825 80,073 Whilst the values for UK contracts were relatively high the derived man-hours reflect an even better picture, as the majority of support activities, such as environmental monitoring and surveys, were almost entirely UK based. How many actual jobs were developed by this work is not clear, but it is clear that certain areas such as the ongoing operations and maintenance have created new jobs, and that the increased level of work in specific areas, has at the very least helped to sustain and safeguard existing jobs. June 2005 31 Douglas-Westwood Ltd & ODE Ltd
  • 32. Scroby Sands – Supply Chain Analysis Final Report Table 4-14: Scroby Sands – UK Content Hours Hours Development Construction Operations UK Total Total Development Design 17,752 17,752 25,752 Environmental Monitoring 364 2,773 3,137 3,137 Insurance/Legal 235 1,798 2,033 2,033 Surveys 1,732 866 2,598 2,598 Project Management 86,125 86,125 90,500 Detailed Design 8,258 8,258 27,633 Procurement & Manufacture 94,219 94,219 133,479 Transport & Delivery 1,900 1,900 6,400 Onshore Pre-Assembly 32,703 32,703 37,549 Onshore Installation 34,375 34,375 34,375 Offshore Installation 21,960 21,960 71,460 Commissioning 29,572 29,572 42,875 Operations & Maintenance 134,875 134,875 163,730 Other Misc. Costs 1,080 9,183 10,263 14,548 UK Total 21,163 323,730 134,875 479,768 Grand Total 29,163 463,176 163,730 656,069 An exception is the pile fabrication work where by the very nature of the work involved both Cambrian Engineering and Isleburn McKay & McLeod had to gear up very quickly to be able to provide a volume of manufacture. As such, many jobs were created for a relatively short period of time and when the piles were complete there was little or no other similar work in the market place, so both companies were unable to sustain their level of activity and consequently were unable to sustain the jobs that were created. Therefore, the aspiration for the wind industry must be, through the creation of a steady series of developments, that the increased demand for manufacture will be able to provide some level of continuity of work and, as a consequence, sustained employment. 4.3 East of England Content Table 4-15: Scroby Sands – East of England Content Value (£’000s) £’000s Development Construction Operations East of England Total Development Design 149 149 1,409 Environmental Monitoring 25 138 162 190 Insurance/Legal 0 211 211 1,779 Surveys 161 87 248 260 Project Management 2,201 2,201 4,551 Detailed Design 180 180 1,111 Procurement & Manufacture 8 8 38,986 Transport & Delivery 55 55 1,225 Onshore Pre-Assembly 1,614 1,614 2,200 Onshore Installation 1,825 1,825 1,825 Offshore Installation 283 283 16,700 Commissioning 613 613 2,175 Operations & Maintenance 5,095 5,095 6825 Other Misc. Costs 0 202 202 837.5 East of England Total 335 7,415 5,095 12,844 Grand Total 1,737 71,511 6,825 80,073 As with the UK content the actual East of England content for this project is considered to be very high and again sets the benchmark for subsequent projects. However, the actual value of East of England content is much lower than the UK content, primarily because of the lack of procurement (equipment supply) and manufacturing facilities in the region. The five areas in which the region proved most successful in securing high value contracts were; Operations and Maintenance, Project Management, Onshore Installation, Onshore Pre-Assembly and Commissioning. June 2005 32 Douglas-Westwood Ltd & ODE Ltd
  • 33. Scroby Sands – Supply Chain Analysis Final Report Table 4-16: Scroby Sands – East of England Content Hours Hours Development Construction Operations East of England Total Development Design 3,268 3,268 25,752 Environmental Monitoring 309 2,551 2,860 3,137 Insurance/Legal 0 400 400 2,033 Surveys 1,613 866 2,479 2,598 Project Management 35,875 35,875 90,500 Detailed Design 4,500 4,500 27,633 Procurement & Manufacture 200 200 133,479 Transport & Delivery 400 400 6,400 Onshore Pre-Assembly 24,281 24,281 37,549 Onshore Installation 34,375 34,375 34,375 Offshore Installation 5,400 5,400 71,460 Commissioning 17,500 17,500 42,875 Operations & Maintenance 124,160 124,160 163,730 Other Misc. Costs 0 3,702 3,702 14,548 East of England Total 5,189 130,050 24,832 160,071 Grand Total 29,163 463,176 163,730 656,069 However, whilst the overall value of works completed within the East of England suggests there to be room for improvement the derived man-hours for the region reflect a much higher level of activity in respect to employment. Although the majority of the high value work was completed outside the region, local companies were able to penetrate the supply chain for the provision of labour intensive activities. With onshore installation, project management and onshore pre-assembly related works reflecting particularly high levels of penetration and significant contract awards. Naturally the physical location of the project will always be a major reason for bringing work into the region within which the project is being constructed. However, this is not an absolute guarantee with areas such as use of local ports and construction facilities being passed over if they are unable to provide cost effective services. This could result in work such as sub-assembly being undertaken in areas remote to the region. June 2005 33 Douglas-Westwood Ltd & ODE Ltd
  • 34. Scroby Sands – Supply Chain Analysis Final Report June 2005 34 Douglas-Westwood Ltd & ODE Ltd
  • 35. Scroby Sands – Supply Chain Analysis Final Report 5 GAP ANALYSIS 5.1 The UK Supply Chain Capability The existing supply chain within the UK has the capability to support the majority of activity inherent within the development, construction and operation of an offshore wind farm. However, in keeping with the development of the sector as a whole the supporting supply chain continues to evolve and will not fully emerge until the market develops further. Indeed, the level of UK content will largely be a function of the timing and positioning of the development of the national supply chain as there is a danger companies may not have the experience to tender competitively when key opportunities arise. The experiences of UK companies within offshore wind to date illustrates the current difficulties of the sector, whilst there have been many positive statements as to anticipated levels of UK content these have not generally been realised when contracts have been awarded. Of those UK and regional suppliers who have entered the market the primary motivation has been to develop sectoral experience and with the extensive challenges and risks inherent in the construction of these first UK projects, a number of companies across the supply chain have reported losses on the contracts awarded to date. The economics of the first offshore wind projects in the UK have been marginal and this has placed significant cost pressure on developers, principal contractors and the wider supply chain during the design and tendering process for those projects. Coupled with this commercial pressure are the current risks associated with certain aspects of project construction where the sector is still learning how best to combine techniques and experience established in the onshore wind industry and other power industry developments with those developed for marine industries, such as oil & gas and telecoms. From a developer’s perspective, the long term investment that is required from suppliers to yield economies of scale and establish fit for purpose and cost competitive solutions has yet to fully materialise, which has given rise to a much slower pace of project development. From the supplier’s perspective, elements of this investment cannot be considered and will therefore not be realised until they can rely upon a continual flow of projects to tender against. There is concernfrom some UK suppliers that they are currently perceived as uncompetitive on both price and quality relative to international suppliers, particularly within the construction phase. This contrasts with theirview that they are currently facing unrealistic cost forecasts given the technical complexity and risk of the work, a view reinforced by the experience of some contractors having lost money through working on first round wind farms. Contractors have indicated that earlier involvement with developers during the development design and detailed design of projects could assist in reducing costs and risks. Table 5-1: UK Proven Capability – Tier 1 Component High Medium Low Environmental Monitoring Development Design Detailed Design Insurance / Legal Commissioning Procurement & Manufacturing Surveys Onshore Pre-Assembly Offshore Installation Project Management Transport & Delivery Onshore Installation Operations & Maintenance The UK currently has limited manufacturing and assembly facilities to develop a construction capability to compete for a share of forthcoming opportunities. This is reinforced by prevailing procurement policies within key sector players, with Vestas, for instance, operating a policy of having three preferred suppliers for each component, which limit the potential for a secure level of supply chain penetration by UK suppliers, though it does offer the opportunity for such UK companies to break into the market by displacing one of the current preferred suppliers. As such, the current focus of the national supply chain remains on opportunities within projects’ development phase and service- based competencies (such as project management and consultancy) throughout a project’s lifecycle. 5.2 The East of England Supply Chain Capability In servicing related industries, most notably offshore oil and gas, the East of England has developed a strong base of suppliers who have the capability to be possible contributors to all phases of the June 2005 35 Douglas-Westwood Ltd & ODE Ltd
  • 36. Scroby Sands – Supply Chain Analysis Final Report offshore wind sector, and providing the region’s infrastructure can be developed appropriately the sector is expected to emerge as a major opportunity as an alternative market for regional companies. Indeed, the sector has provided a new area of focus for the regional offshore supply chain which has recently been shaken by Shell’s departure and subsequently sought to safeguard against the vagaries of the oil and gas sector. However, at present the region lacks a consolidated base of experienced suppliers to the sector as little of the potentially substantial regional capability has been realised to date. Indeed, questions remain among regional companies over the economics of the sector as, in spite of substantial initial interest, the difficulties of SMEs in particular in winning work on Scroby Sands has created a perception that contracts on future projects may be unobtainable. Table 5-2: East of England Proven Capability – Tier 1 Component High Medium Low Environmental Monitoring Commissioning Detailed Design Onshore Installation Project Management Development Design Onshore Pre-Assembly Insurance / Legal Operations & Maintenance Procurement & Manufacturing Surveys Offshore Installation Transport & Delivery At present, although the skills and expertise are in place, the region lacks the full complement of equipment and infrastructure to fully support the sector particularly in the construction phase. Therefore regional suppliers are at a disadvantage in competing with the experience and capability of other UK and European competitors and are not currently positioned to take full advantage of sectoral opportunities. This has been compounded by difficulties in breaking into established supply chains which has created a sense that while specific companies can benefit, the regional supply chain as a whole can only compete for lower value opportunities. 5.3 Value and Employment Assessment Table 5-3: Scroby Sands – Value (£’000s) East of £000s Total Other UK UK % England Procurement & 43% Manufacture 38,986 8 16,821 Offshore Installation 16,700 283 1,940 13% Project Management 4,551 2,201 2,175 96% Onshore Pre-Assembly 2,200 1,614 230 84% Commissioning 2,175 613 978 73% Onshore Installation 1,825 1,825 0 100% Insurance/Legal 1,779 211 1,568 100% Development Design 1,409 149 780 66% Operations & Maintenance 6,825 5,095 550 83% Transport & Delivery 1,225 55 235 24% Detailed Design 1,111 180 156 30% Other Misc. Costs 838 202 486 82% Surveys 260 248 12 100% Environmental Monitoring 190 162 28 100% Total 80,073 12,844 25,957 48% The respective contributions of the UK’s and East of England’s contributions to the development, construction and operation of Scroby Sands gives a clear indication of the key strengths and weaknesses of national and regional suppliers and infrastructure, as well as an indication of key areas of future content. 70% of the value of contracts awarded for Scroby related to the procurement and manufacture of components and offshore installation. However, of a total value of £55.7 million only £19 million was sourced from within the UK and just £291,000 from within the East of England. Indeed, the majority of the UK’s 48% content has been sourced from relatively low value, service-based activities with, for June 2005 36 Douglas-Westwood Ltd & ODE Ltd
  • 37. Scroby Sands – Supply Chain Analysis Final Report instance, the UK providing all environmental monitoring, survey, insurance/legal and onshore installation related works. Such activity was supplemented by high levels of East of England content within project management, onshore pre-assembly and operations and maintenance activities. An analysis of the hours spent worked within each of the key contracts awarded for the development, construction and operation of Scroby Sands illustrates the relatively low value nature of UK content within the project. For while UK content relates to 48% of the value of contracts awarded on Scroby Sands it accounts for 73% of the hours spent on the project, with East of England content growing from 16% to 40% respectively. The key areas of UK content are the procurement and manufacture of component parts (specifically the piles, towers and cables) and project management related activities. Table 5-4: Scroby Sands – Hours Hours Total East of England Other UK UK % Procurement & 71% Manufacture 133,479 200 94,019 Project Management 90,500 35,875 50,250 95% Offshore Installation 71,460 5,400 16,560 31% Commissioning 42,875 17,500 12,072 69% Onshore Pre-Assembly 37,549 24,281 8,422 87% Onshore Installation 34,375 34,375 0 100% Operations & Maintenance 163,730 124,160 10,715 82% Detailed Design 27,633 4,500 3,758 30% Development Design 25,752 3,268 14,485 69% Other Misc. Costs 14,548 3,702 6,561 71% Transport & Delivery 6,400 400 1,500 30% Environmental Monitoring 3,137 2,860 277 100% Surveys 2,598 2,479 119 100% Insurance/Legal 2,033 400 1,633 100% Total 656,069 259,399 220,369 73% 5.4 Gaps in the Supply Chain The primary areas of Scroby Sands which do not appear to be currently open to UK penetration centre on the construction phase, as UK companies have achieved a high level of content in both the development and operations phases. Table 5-5: Scroby Sands – Component Construction (£’000s) East of UK% £’000s Other UK Non UK Total England Blades 125 0 6,325 6,450 2% Cables 1,463 4,242 2,923 8,627 66% Grid Interface 645 0 0 645 100% Nacelles 994 1,875 19,306 22,175 13% Piles 210 9,555 9,800 19,565 50% Towers 0 4,425 350 4,775 93% Indirect Costs 3,979 4,388 908 9,274 90% Total 7,415 24,485 39,611 71,511 45% Within the construction phase of Scroby Sands contracts to the value of approximately £71.5 million were awarded of which £31.9 million was sourced from UK suppliers. The primary area in which the UK lacks capability is within activities related to the manufacture and installation of blades and nacelles, as of a total spend within the construction phase of £28.6 million just £3 million of such activity was catered for within the UK. However, UK suppliers were heavily involved in the onshore pre-assembly, commissioning and operation and maintenance of all components, resulting in the level of UK content rising from 45% of the value of construction phase contracts to 70% of the associated hours incurred. June 2005 37 Douglas-Westwood Ltd & ODE Ltd
  • 38. Scroby Sands – Supply Chain Analysis Final Report Table 5-6: Scroby Sands – Component Construction (Hours) Hours East of England Other UK Non UK Total UK% Blades 1,125 0 10,765 11,890 9% Cables 34,400 27,758 30,325 92,483 67% Grid Interface 5,375 0 0 5,375 100% Nacelles 26,299 21,308 48,429 96,035 50% Piles 4,400 55,850 28,660 88,910 68% Towers 0 29,214 3,250 32,464 90% Indirect Costs 58,451 59,551 18,017 136,019 87% Total 130,050 193,680 139,446 463,176 70% The lowest level of UK content in terms of value of contracts awarded on Scroby Sands was realised within offshore installation as just £2.2 million of a total of £16.7 million was sourced within the UK, and just £283,000 within the East of England. The largest component of such activity related to the installation of the piles of which the UK had no content. The proportion of UK content again rose when analysing associated hours spent, from 13% to 31%, primarily due to the installation of the export cable. Table 5-7: Scroby Sands – Offshore Installation (£’000s) £’000s East of England Other UK Non UK Total UK% Cables 283 1,320 2,898 4,500 36% Nacelles 0 620 2,480 3,100 20% Piles 0 0 9,100 9,100 0% Total 283 1,940 14,478 16,700 13% Table 5-8: Scroby Sands – Offshore Installation (Hours) Hours East of England Other UK Non UK Total UK% Cables 5,400 14,400 29,700 49,500 40% Nacelles 0 2,160 8,640 10,800 20% Piles 0 0 11,160 11,160 0% Total 5,400 16,560 49,500 71,460 31% A further area of weakness within the UK supply chain at the time of tender for Scroby Sands was the lack of manufacturing capability, specifically for blades and nacelles. For while high levels of UK content was realised within the manufacture of piles, cables and towers the lack of facilities for nacelle manufacturing in particular restricted UK content to £16.8 million, and the East of England to £8,000, of a total spend of approximately £39 million. UK manufacturers active in the offshore wind industry have had a challenging time since the first round began with a number of high-profile companies entering administration. AEI Cables is the most recent company to face financial troubles and in February 2005 announced it would close its power cables manufacturing division in Gravesend due to fierce competition from abroad. In February 2004, UK tower and foundation manufacturer Cambrian Engineering Ltd entered administration, struggling to keep afloat in the wake of many delayed onshore wind farm contracts. Cambrian Caledonian Ltd (CamCal) later acquired the assets of Cambrian Engineering and will restart production. Cable layer Global Marine Systems (GMS) also went through a period of administration, beginning September 2004, following the downturn in the submarine telecommunications industry. Furthermore, Mayflower Energy, previously a division of the Mayflower Corporation who built a newbuild vessel for turbine and foundation installation, went into administration in March 2003. However, the management successfully bought the business out of administration with backing from investment bank Mizuho International in April 2004, and formed Marine Projects International (MPI). MPI have subsequently gone on to install the monopile foundations on Kentish Flats and were awarded the offshore construction contract for the UK’s Barrow offshore wind farm in May 2005. June 2005 38 Douglas-Westwood Ltd & ODE Ltd
  • 39. Scroby Sands – Supply Chain Analysis Final Report Table 5-9: Scroby Sands – Procurement & Manufacture (£’000s) £’000s East of England Other UK Non UK Total UK% Blades 0 0 6,000 6,000 0% Cables 0 2,836 0 2,836 100% Nacelles 0 103 15,898 16,000 1% Piles 0 9,450 0 9,450 100% Towers 0 4,425 75 4,500 98% Indirect Costs 8 8 185 200 8% Total 8 16,821 22,158 38,986 43% Table 5-10: Scroby Sands – Procurement & Manufacture (Hours) Hours East of England Other UK Non UK Total UK% Blades 0 0 8,640 8,640 0% Cables 0 11,350 0 11,350 100% Nacelles 0 2,255 23,200 25,454 9% Piles 0 51,000 0 51,000 100% Towers 0 29,214 2,250 31,464 93% Indirect Costs 200 200 5,171 5,571 7% Total 200 94,019 39,261 133,479 71% 5.5 Key Areas for Future UK content An indication of potential key areas for future UK and East of England content within forthcoming offshore wind farms is illustrated by an assessment of which contracts, sub-contracts or component supplies to Scroby Sands could have been undertaken by national and regional companies given current capability. In undertaking such a process each contract down to Tier 3 component supply was analysed and an assessment made as to whether there is a UK or East of England company with the capability to perform the task. It was assumed that EROWL were the developer, however, no further assumptions were made as to turbine manufacturer, contract strategy or any other element of the development. Table 5-11: Scroby Sands – Potential UK Value (£’000s) £000s Actual Potential Total Development Design 929 1,409 1,409 Environmental Monitoring 190 190 190 Insurance/Legal 1,779 1,779 1,779 Surveys 260 260 260 Project Management 4,376 4,526 4,551 Detailed Design 336 1,111 1,111 Procurement & Manufacture 16,829 16,961 38,986 Transport & Delivery 290 1,225 1,225 Onshore Pre-Assembly 1,844 1,976 2,200 Onshore Installation 1,825 1,825 1,825 Offshore Installation 2,223 16,700 16,700 Commissioning 1,590 1,950 2,175 Operations & Maintenance 5,645 5,845 6,825 Other Misc. Costs 688 738 838 Total 38,802 56,494 80,073 June 2005 39 Douglas-Westwood Ltd & ODE Ltd
  • 40. Scroby Sands – Supply Chain Analysis Final Report Table 5-12: Scroby Sands – Potential UK Hours Hours Actual Potential Total Development Design 17,752 25,752 25,752 Environmental Monitoring 3,137 3,137 3,137 Insurance/Legal 2,033 2,033 2,033 Surveys 2,598 2,598 2,598 Project Management 86,125 89,875 90,500 Detailed Design 8,258 27,633 27,633 Procurement & Manufacture 94,219 97,313 133,479 Transport & Delivery 1,900 6,400 6,400 Onshore Pre-Assembly 32,703 34,888 37,549 Onshore Installation 34,375 34,375 34,375 Offshore Installation 21,960 71,460 71,460 Commissioning 29,572 36,447 42,875 Operations & Maintenance 134,875 137,730 163,730 Other Misc. Costs 10,263 11,691 14,548 Total 479,768 581,332 656,069 An analysis of the contracts awarded within Scroby Sands shows that UK content could conceivably have been raised from £38.8 million (48%) to £56.5 million (71%) given current capability and assuming competitive tenders. The primary area of potential growth is offshore installation, where it is believed UK companies could perform the installation of all the key components of the development. Therefore the only area of significant weakness remains the manufacturing of nacelle and blades which account for £22 million of the differential between UK potential value and the total value of Scroby Sands. Table 5-13: Scroby Sands – Potential East of England Value (£’000s) £000s Actual Potential Total Development Design 149 149 1,409 Environmental Monitoring 162 187 190 Insurance/Legal 211 1,727 1,779 Surveys 248 260 260 Project Management 2,201 2,454 4,551 Detailed Design 180 1,111 1,111 Procurement & Manufacture 8 100 38,986 Transport & Delivery 55 233 1,225 Onshore Pre-Assembly 1,614 1,836 2,200 Onshore Installation 1,825 1,825 1,825 Offshore Installation 283 6,400 16,700 Commissioning 613 1,950 2,175 Annual O&M 5,095 5,345 6,825 Other Misc. Costs 202 738 838 Total 12,844 24,312 80,073 June 2005 40 Douglas-Westwood Ltd & ODE Ltd
  • 41. Scroby Sands – Supply Chain Analysis Final Report Table 5-14: Scroby Sands – Potential East of England Hours Hours Actual Potential Total Development Design 3,268 3,268 25,752 Environmental Monitoring 2,860 3,106 3,137 Insurance/Legal 400 1,933 2,033 Surveys 2,479 2,598 2,598 Project Management 35,875 42,188 90,500 Detailed Design 4,500 27,633 27,633 Procurement & Manufacture 200 2,906 133,479 Transport & Delivery 400 1,400 6,400 Onshore Pre-Assembly 24,281 30,317 37,549 Onshore Installation 34,375 34,375 34,375 Offshore Installation 5,400 51,300 71,460 Commissioning 17,500 36,447 42,875 Annual O&M 124,160 127,730 163,730 Other Misc. Costs 3,702 11,691 14,548 Total 259,399 376,890 656,069 East of England content within Scroby Sands could have reached approximately £24 million given current capability and competitive tenders. The primary area of potential growth is again offshore installation, particularly the installation of cables and scour protection, within which it is believed regional companies could have undertaken contracts to the value of £6.4 million. However, in the absence of a manufacturing capability for any of the key components or offshore installation capacity for nacelles or piles regional content would not exceed 30% of the value of all contracts awarded. June 2005 41 Douglas-Westwood Ltd & ODE Ltd
  • 42. Scroby Sands – Supply Chain Analysis Final Report June 2005 42 Douglas-Westwood Ltd & ODE Ltd
  • 43. Scroby Sands – Supply Chain Analysis Final Report 6 POTENTIAL SUPPLY CHAIN PENETRATION Four different contracting strategies for offshore wind development are presented below, along with an analysis of their potential impact on levels of UK and East of England content had they been employed within the development, construction and operation of Scroby Sands. The first is the strategy used by EROWL for Scroby Sands, while the others are a combination of strategies that are currently being pursued by other developers of UK projects and likely strategies for future developments. By adopting a different contracting strategy the level of UK and East of England content in a project could be significantly altered due to the implicit changes in the supply chain. For instance the use of a UK company high up within the supply chain (i.e. as an EPIC contractor) will, for example, lead to a higher level of regional content further down the chain as the company places contracts with companies with whom it has existing relationships. The utility company Centrica has a large number of projects in the first and second round which will effectively be treated as phases of one huge development. The first two of these, Inner Dowsing and Lynn are being contracted together. This method of integrating tendering is new to the industry and there has been much speculation as to the results of it. 6.1.1 Scenario 1 In this scenario the developer (an independent developer or a utility-led development team) awards one main contract to the supply contractor, who is typically the turbine manufacturer. This contractor therefore bears the majority of the risk of the project’s construction phase and would effectively be the contractor for all offshore procurement, installation and operations. Other work packages such as grid connection would be tendered by the developer in consultation with the Distribution Network Operator. Scenario 1: Scroby Sands Contracting Turbine Supply Turbine Turbine Installation Developer Manufacturer Offshore Cable Supply Offshore Cable Installation Onshore Foundation Supply Construction Foundation Installation Onshore Cable Installation Onshore Cable Supply Substation/Grid Figure 6-1: Contracting Strategies – Scenario 1 Impact on Scroby Sands This strategy resulted in a high level of UK and East of England content within Scroby Sands relative to other UK projects installed or contracted to date. For many of these companies, however, the Scroby Sands project was one on which they lost money. This is the result of an immature industry where cost targets remain unrealistic. Subcontractors bidding to Vestas Celtic were left with little room for profitability on the project, the pay-off, however, being early involvement in the industry. An overall UK content figure of 48% was achieved on the project (figure includes five years operation) as by using many UK subcontractors Vestas Celtic were able to achieve a high level of overall UK content. Key areas of UK content include project development, project management, Vestas Celtic’s UK turbine assembly plant in Campbeltown and the use of port facilities at Great Yarmouth and Lowestoft. Summary The strategy used on Scroby Sands resulted in a high level of UK content on the project but at a financial loss for some of the subcontractors working on the project. This type of strategy is typical of June 2005 43 Douglas-Westwood Ltd & ODE Ltd
  • 44. Scroby Sands – Supply Chain Analysis Final Report the first commercial scale offshore wind developments, but in the future it is less likely that such a strategy will be pursued in the same way. 6.1.2 Scenario 2 In the second scenario the developer places a contract with an EPIC contractor partnered (through sub-contracts) with a turbine manufacturer. The EPIC contractor would announce its intention to work with a specified turbine supplier when it tenders. This partnership of manufacturer and contractor creates a strong team and facilitates a balance between cost and risk for all parties involved. The turbine supplier is responsible solely for the supply of the turbines (a five-year O&M contract is also likely to be included). The main contractor therefore subcontracts the other fabrication and installation work depending on their own capabilities. Scenario 2: EPIC & Turbine Supplier Joint Contracting Foundation supply Cable supply Developer EPIC Turbine installation Foundation installation Cable installation Onshore works Turbine Supplier Turbine supply Figure 6-2: Contracting Strategies – Scenario 2 Examples of this type of strategy include the Barrow project, where Centrica will award the main contract to a team consisting of Halliburton KBR and Vestas. Potential Impact on Scroby Sands The adoption of the above strategy on the Scroby Sands project would have reduced Vestas Celtic’s role on the project. Whereas Vestas were responsible for contracting out the majority of offshore subcontracts for procurement and installation, their role would have been limited to solely supplying turbines. Under this scenario, EROWL would therefore have contracted in a EPIC contractor, such as Amec or Halliburton KBR, who would bid for the work with Vestas as a subcontractor. The successful EPIC contractor would then subcontract the individual work packages. This approach would therefore have reduced EROWL’s own involvement in the development of the project once the EPIC contract had been awarded, though it is likely that the developer would wish to maintain control over a number of strategic contracts for control and timing reasons. In terms of UK and East of England content it is hard to speculate how an EPIC contractor would subcontract the work, even if (as is likely) the EPIC contractor was a UK-based company. UK content on Scroby was high and although there are UK companies that could have completed the work that originally went to Europe there is no guarantee that a UK EPIC contractor would award the work to them. A UK-based EPIC contractor would, however, be expected to result in further value being retained in the UK compared to, for example, a contracting strategy where the turbine manufacturer was the main contractor. The industry is already seeing the entrance of established oil and gas companies at all levels of the contracting process from developers through to installation contractors. An EPIC contractor with significant experience in oil and gas in the North Sea would already have enhanced knowledge of, and access to, UK companies. This could result in a substantially higher UK content in projects. Summary This approach to contract is an intermediary step between the early methods of contracting such as that seen on Scroby Sands and the more advanced contracting expected in years to come. It offers a better balance of risk and cost for all parties and is likely to become the most commonly adopted approach to contracting for the immediate future. June 2005 44 Douglas-Westwood Ltd & ODE Ltd
  • 45. Scroby Sands – Supply Chain Analysis Final Report 6.1.3 Scenario 3 The third type of scenario sees the developer placing contracts individually for all parts of the manufacture and construction of the project. This approach requires a developer able to finance a project’s development and construction without recourse to third party finance and which in the majority of cases would have some form of construction/contracting experience. The developer bears the risk in exchange for a more cost-efficient construction and a tighter control over the contract awards down the supply chain. This scenario effectively assumes the emergence of ‘super-developers’ in the same style as the major operators of the oil and gas industry. There are not currently any ‘super-developers’ identifiable in this context as developers have to date tended to take a ‘hands-off’ approach to construction, and few major EPIC contractors have entered the industry as yet (although several will do in the coming years). In offshore wind this approach is likely to first be demonstrated by a developer (or utility) partnering with a major contractor to form a strong development team. Scenario 3: EPIC Contracting Turbine supply Turbine installation Foundation supply Developer//EPIC Foundation installation Infield cable supply Infield cable installation Export cable supply Export cable installation Onshore works Grid connection Figure 6-3: Contracting Strategies – Scenario 3 The UK’s Round 2 developments may in some cases take this approach. A potential example would be the massive Beatrice wind farm planned off the coast of Scotland by Talisman Energy. This innovative 1 GW project is already trying to fuse together offshore wind and oil and gas developments. This contracting approach is now common in onshore wind where the industry is relatively well developed and experience is high. Offshore, however, project sizes and thus risks and costs are higher, while experience is still limited. We expect some slight shift towards this final strategy towards the end of the decade, however in the meantime we expect a hybrid of Scenario’s 2 and 3 to evolve with the three principal contracts (the supply and installation of cables, turbines and foundations) being put up for tender. Potential Impact on Scroby Sands Scroby Sands was only the UK’s second major offshore wind project and at the time of development and contracting this type of contracting strategy would have been unsuitable for the project. It places a high burden of risk on the developer acting as the EPIC contractor; risk that they would have been unwilling to take. Instead of Vestas Celtic acting as the main contractor, a larger specialist company would have been brought in who would then be faced with subcontracting the entire project. To try and reduce risk, this EPIC contractor would then have had to balance experience with cost to choose subcontractors. Such a strategy would increase project viability as it lets cost be controlled, giving a degree of certainty to the developer and their financers. Summary This contracting strategy is highly advanced compared with current practices and projects tendering in such a way are not expected for some years. The risk on the EPIC contractor is large and the industry is currently lacking in sufficient experience to make such a strategy viable. June 2005 45 Douglas-Westwood Ltd & ODE Ltd
  • 46. Scroby Sands – Supply Chain Analysis Final Report 6.1.4 Scenario 4 This last contracting strategy is fundamentally different to the others presented above. In it the main construction contract is placed with a consortium of companies which would typically include turbine, foundation and cable suppliers with the potential addition of a main installation contractor to the group. This partnership of companies would then subcontract any remaining work (e.g. onshore works). This alliance style strategy is well-used in the oil and gas industry. It would be possible for a key selection of companies to offer a complete construction package for an offshore development. A further step forward would be the addition of development services into the capabilities of partnerships – effectively meaning that a group of companies could take a project from conception through to operation. The advantages of this strategy are that the risk and cost of development are split fairly between the consortium companies. By working together they are able to provide a solution at a very competitive price. The companies are also able to provide a guaranteed availability in terms of fabrication and installation. As the industry progresses it is expected that these types of alliances will emerge as companies gain experience of working with one another and realise the commercial value that joint tendering could have. An early example of such a strategy can be seen on the Thornton Bank offshore wind farm which is planned off Belgium. The C-Power consortium consists of Interelectra, Siif Energies, Dredging International and a number of financers. In this case, the consortium is responsible for both the development and construction of the project. Scenario 4: Partnership Based Contracting Partnership of Turbine Installation contractors e.g. Foundation Installation Developer Cable Installation Turbine Supplier Onshore Works Foundation Supplier Cable Supplier Figure 6-4: Contracting Strategies – Scenario 4 Potential Impact on Scroby Sands The use of this last type of contracting strategy on Scroby Sands would theoretically allow a higher level of UK content in the project than was achieved. This assumes that an alliance of companies could be formed amongst regional and/or national companies. This is likely as there is a sufficient range of expertise to fulfil much of the needs of the Scroby project. The main problem here is the lack of a UK-based turbine supplier. Whilst blades and towers can be built in the UK there is not currently any turbine manufacturing capability based in the UK apart from assembly (which is low in value). At the time of contracting the project the industry was not in a sufficiently developed state to offer competitive partnership-based contracting. Fundamentally this comes down to a lack of offshore experience. Summary This contracting strategy has the most potential for the offshore wind industry. It offers the best balance of risk and cost for all involved parties. Partnerships can be formed from regional and UK companies in order to maximise domestic content. It is not believed that this type of contracting methodology will be seen in the UK until the second round projects are tendered. This is, however, likely to be the strategy that results in maximum UK content. In the meantime the UK is expected to see the consolidation of some of the leading offshore wind contractors seeking to improve their scope of work through takeovers and mergers. 6.1.5 Conclusion Whilst the type of contracting strategy that is selected may affect both UK and regional content, there are other influencing factors that are common to all the different scenarios. For example, the management of the design process, through the development phase and on to the detailed design which forms the basis of tendering, can have a direct effect on the opportunities open to UK and June 2005 46 Douglas-Westwood Ltd & ODE Ltd
  • 47. Scroby Sands – Supply Chain Analysis Final Report regional companies to be aware of and tender for a role in construction. If the design process is opened up to include early input from various regional and UK sub-contractors/service providers, particularly in an attempt to reduce uncertainties over construction costs and schedules and to reduce the likelihood of tender reissues and revisions, then this may well cascade into increased involvement in the main project phase. This would of course result in a much more expensive development process for the project developer and involve a degree of additional risk taken before a project has secured all necessary licences and consents. Similarly, the timetable for tendering can be an influence. There is an acknowledged need for better understanding of the timing and role of procurement pre-qualification exercises by the project developer and potential major contractors among UK companies in advance of the formal procurement process for a specific project. In terms of the formal project tendering itself, a major issue is whether the tender return period allows sufficient time for the contractor to review, source and include local sub-contractors in their bid. Finally, another area that could be of influence, as previously mentioned, is standardisation of approach, and in particular standardisation of contracts. The increased transparency and familiarity of standard contracts could ease some of the burden of the costly tendering process and allow more certainty, which through reduced exposure to risk will provide opportunity for cost reduction. This approach would also help to encourage new entrants into the industry, who may at present be discouraged by some of the complexities of existing contract requirements. June 2005 47 Douglas-Westwood Ltd & ODE Ltd
  • 48. Scroby Sands – Supply Chain Analysis Final Report June 2005 48 Douglas-Westwood Ltd & ODE Ltd
  • 49. Scroby Sands – Supply Chain Analysis Final Report 7 Forecast Round 2 UK Content 7.1 UK Round 2 Projects Figure 7-1: UK Strategic Areas The offshore wind farms planned off the UK are primarily located in three strategic development areas: The Greater Wash, The Thames Estuary and The North West. For the purpose of this study all projects in The Thames Estuary and The Greater Wash are being considered. Although in some cases the locations of the planned projects in these two areas are geographically distant from the physically defined East of England region (Bedfordshire, Cambridgeshire, Essex, Hertfordshire, Norfolk and Suffolk) they fall within its area of influence, East of England companies will be tendering for contracts for these projects and the region’s ports are well suited to the requisite construction work. The East of England has a total of approximately 6 GW of capacity planned which will come from approximately 1,700 turbines (exact capacity and numbers depend on turbine sizes chosen). Total capital expenditure for all Round 1 and 2 projects is forecast to reach approximately £7.4 billion. June 2005 49 Douglas-Westwood Ltd & ODE Ltd
  • 50. Scroby Sands – Supply Chain Analysis Final Report 7.1.1 Docking Shoal Docking Shoal Location Greater Wash - 19km Developer Centrica / Amec off Hunstanton, Norfolk Construction 2009 Owner/Operator Centrica Online 2010 EPC n/a Capacity (MW) 500 Turbine Installation n/a Number of Turbines 100-125 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 750 Turbine Rating (MW) 4-5 Planning Status Licence - Dec 2003 Foundation Type Monopile/Tripod Contracting Status Not begun Water Depth (m) The initial licence for this 500 MW project was awarded in December 2003 as part of the UK's second licensing round. Centrica are to be the owner of the wind farm and will co-develop the project with Amec, who may take an EPC role on the wind farm. Centrica will effectively be treating the Lynn, Inner Dowsing, Lincs, Docking Shoal, and Race Bank as phases in one development and aim to get the projects built as quickly and cost effectively as possible by grouping together key contracts. Any contractor awarded work for Lynn/Inner Dowsing is therefore expected to be well positioned to gain future work in other local projects. Their close proximity also means the projects can benefit from prior environmental work already carried out on other Centrica assets. Recent details suggest that Docking Shoal will be developed as two phases, Docking Shoal 1 and Docking Shoal 2. No further details have been made available – the two ‘blocks’ could be developed simultaneously or as separate developments. 7.1.2 Dudgeon East Dudgeon East Location Greater Wash - 28km Developer Warwick Energy Ltd off Cromer, Norfolk Construction 2009 Owner/Operator Warwick Energy Ltd Online 2010 EPC n/a Capacity (MW) 300 Turbine Installation n/a Number of Turbines 60-100 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 350 Turbine Rating (MW) 3-5 Planning Status Initial licence granted. Application 2006 Foundation Type Steel tripod Contracting Status Not begun Water Depth (m) 17 - 22 Warwick Energy were awarded a licence for the Dudgeon East site in December 2003 as part of the UK's second licensing round. However, this site is outside of the UK's territorial waters and therefore requires the current Energy Bill to be passed by parliament if they are to proceed. The 300 MW site, located in water depths of between 17 and 22 metres over a seabed of sand on chalk, is considering 100 3 MW turbines, or 60-75 4-5 MW machines. Warwick hope to submit an application in 2006. Warwick is considering synergies between wind and gas production for the Dudgeon site, as the project is sited on a gas discovery of an estimated 50 billion cubic feet of the same name held by the company. Whilst not previously judged as commercial, the gas may be recoverable in the future as technology improves and costs fall. Development of the gas field could ease the later development of the wind farm and vice versa, in terms of infrastructure, operations and maintenance. June 2005 50 Douglas-Westwood Ltd & ODE Ltd
  • 51. Scroby Sands – Supply Chain Analysis Final Report 7.1.3 Greater Gabbard Greater Gabbard Location Thames Estuary - 26 Developer Greater Gabbard km Offshore Winds off Felixstowe, Suffolk (Airtricity & Fluor) Construction 2008 Owner/Operator Greater Gabbard Offshore Winds (Airtricity & Fluor) Online 2010 EPC Fluor Capacity (MW) 500 Turbine Installation n/a Number of Turbines 100-139 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 550 Turbine Rating (MW) 3.6-5 Planning Status Initial licence granted. EIA underway. App - Q3 2005 Foundation Type Monopile Contracting Status Not begun Water Depth (m) The Greater Gabbard wind farm is under development by Airtricty and Fluor (under the name Greater Gabbard Offshore Winds Limited). The project was a successful bidder in the UK’s second round of offshore wind farm leases. The Greater Gabbard project is located approximately 26 km from the Suffolk coast and comprises one site located in the outer Thames Estuary, on two sand banks known as the Inner Gabbard and The Galloper, an area currently used for the dumping of material dredged from shipping channels. These two thin strips of turbines are right on the 12 mile territorial limit. Work on the EIA began in early 2004 and will take 15 months to complete. An application to build will subsequently be lodged in the summer of 2005. Initial consultations have already begun with the local community, the fishing industry and environmental experts over the scheme. Consultations are due to end in 2005. Assuming 3.6 MW turbines are used, the site will have 139 turbines, however, it must be assumed that the developers are considering larger machines which should be available at that time. A phased development strategy is likely, with Fluor likely to take on an EPC role (possibly in a joint role with a turbine manufacturer). No detailed information about these phases has been released at present. If approval is successful the team expect work to begin on the site in 2008. 7.1.4 Gunfleet Sands II Gunfleet Sands II Location Thames Estuary - 7km Developer GE Gunfleet Ltd off Clacton-on-Sea, Essex Construction 2007 Owner/Operator Project will be sold Online 2007-8 EPC GE Wind (with ?) Capacity (MW) 64 Turbine Installation n/a Number of Turbines 16 Foundation n/a Installation Turbine GE Wind Total Cost (£m) 77 Manufacturer Turbine Rating (MW) 4 Planning Status Initial licence granted. Full app being prepared Foundation Type Monopile Contracting Status Contracting not begun Water Depth (m) 8 – may carry over phase 1 June 2005 51 Douglas-Westwood Ltd & ODE Ltd
  • 52. Scroby Sands – Supply Chain Analysis Final Report Current plans for GE Wind’s 64 MW extension to the Gunfleet Sands project suggest 16 turbines each rated at 4 MW will be installed in 2007. The development of Gunfleet Sands II is expected to be closely linked to the development and construction of the first phase project. Gunfleet Sands I is currently in the contracting phase and GE are looking for an owner for the wind farm before construction begins. Any future owner would presumably be offered Gunfleet Sands II as part of any deal made. A joined-up approach to the construction of the two projects would be beneficial in terms of cost, although Gunfleet Sands II has not yet submitted a full application. GE Wind are fully expected to be using their own turbines on the project as they will on the first phase, but on this project a 4 MW machine is expected. Gunfleet Sands II has the potential to be the first round two project installed in the UK, depending upon GE’s success in finding a buyer for the first phase of the project. 7.1.5 Humber Gateway Humber Gateway Location Greater Wash - 10km Developer Humber Wind Ltd off Spurn Head, Yorks (United Utilities & GREP) Construction 2008 Owner/Operator United Utilities Online 2009 EPC Vestas likely Capacity (MW) 300 Turbine Installation n/a Number of Turbines 60-100 Foundation n/a Installation Turbine Vestas likely (GREP) Total Cost (£m) 350 Manufacturer Turbine Rating (MW) 3-5 Planning Status Initial licence granted. App. under preparation. Foundation Type Monopile Contracting Status Not begun Water Depth (m) 13 United Utilities and GREP, were awarded this 300 MW licence in December 2003 as part of UK's second licensing round, under the name Humber Wind Ltd. Construction was initially planned for 2007, but is expected to slip into 2008, with the developer aiming for a one season installation of the 60-100 turbines. The water depth at the site is shallow (12-14m) meaning monopiles are likely, although GBS foundations could also be possible. The project will be built on the seabed (a firm boulder clay), rather than a sandbank and at the nearest point the coast will be just 8 km away (visual impact could be a problem as Spurn Head is a Heritage Coast site). Two offshore substations are initially planned, and power will be exported to the grid at 132kV. A full application is expected by the end of 2005, with environmental impact assessment studies already underway, which if achieved could lead to commissioning being complete by mid 2008. Vestas are the likely turbine supplier for the project and could act in an EPC role. June 2005 52 Douglas-Westwood Ltd & ODE Ltd
  • 53. Scroby Sands – Supply Chain Analysis Final Report 7.1.6 Lincs (Inner Dowsing II) Lincs (Inner Dowsing II) Location Greater Wash - 8 km Developer Centrica off Skegness, Lincs Construction 2008 Owner/Operator Centrica Online 2009 EPC n/a Capacity (MW) 250 Turbine Installation n/a Number of Turbines 50-83 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 300 Turbine Rating (MW) 3-5 Planning Status Initial licence granted. App. under preparation Foundation Type Monopile Contracting Status Not begun Water Depth (m) 10-15 Offshore Wind Power (OWP) initially won the 250 MW licence for the Lincs site, which is effectively an extension to the Inner Dowsing project. Centrica assumed total ownership of the project in December 2003 after buying out OWP, and will effectively be treating the Lynn, Inner Dowsing, Lincs, Docking Shoal, and Race Bank as phases in one development. The recently completed environmental impact assessment work on Centrica’s other assets will aid the development of this project, with construction on this site potentially beginning as early as 2007. The application to build will be submitted in Q1 2005, with Centrica currently looking at between 50- 80 3-5 MW turbines. Grid improvements are necessary, and one offshore substation will be built. 7.1.7 London Array – Phase 1 (LAWL) The London Array development is a 1 GW offshore wind farm planned for the Thames Estuary. The wind farm was originally proposed by EROWL (formerly Powergen) and Shell, in association with Core (a private-equity consortium between Energi E2 and Farm Energy). The initial timetable called for construction in 2007, however, the project has now been split into three phases and will be developed individually by two teams. London Array –Phase 1 (LAWL) Location Thames Developer London Array West (EROWL Estuary & Core) Construction 2007/8 Owner/Operator London Array West (EROWL & Core) Online 2009 EPC n/a Capacity (MW) 300 Turbine Installation n/a Number of Turbines 100 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 360 Turbine Rating (MW) 3 Planning Status Licence granted. EIA & consultations begun. App underway Foundation Type Monopile Contracting Status Pre-qualification begun. Water Depth (m) 8 Invitations to tender April 2005 The project was designed for 300 wind turbines, each up to 300ft tall, which would generate 1,000 megawatts of electricity. Although the wind farm is to be built 12 miles offshore, the project will include an onshore substation, proposed for Cleve Hill, which will collect the generated power and feed it into the electricity grid. By August 2004, two full years of bird studies had been completed at the site. A met mast to record wind speed data was erected at the site by Seacore in October 2004 using Seacore's own purpose built eight legged jack-up platform Excalibur as a stable working platform to install the 1.62m diameter tubular steel foundation monopile. The met mast tower is equipped with anemometry, temperature probes and electronic recording and transmitting equipment. June 2005 53 Douglas-Westwood Ltd & ODE Ltd
  • 54. Scroby Sands – Supply Chain Analysis Final Report London Array – Phase 2 (LAWL) Location Thames Developer London Array West (EROWL Estuary & Core) Construction 2009/10 Owner/Operator London Array West (EROWL & Core) Online 2011 EPC n/a Capacity (MW) 367 Turbine Installation n/a Number of Turbines 73-122 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 440 Turbine Rating (MW) 3-5 Planning Status Initial licence granted. First phase EIA/planning underway Foundation Type Monopile Contracting Status Not begun Water Depth (m) 8 The consultation process for the wind farm began in September 2004 with EROWL contacting community and industry groups in the region. The consultation exercise is a precursor to seeking planning approval from Kent and Essex councils in 2005. By engaging with the community the development team will hope to pre-empt any opposition to the project. While the full application to build the wind farm is scheduled for submission mid 2005 there have recently been major changes to the development strategy. In January 2005, the project partners on London Array split the development and will progress as two separate development teams. EROWL and Core have formed London Array West Limited (LAWL) and will build the first phase of up to 300 MW and a further phase of 367 MW at a later date. Shell will focus on a 333 MW phase of the project. LAWL have begun the pre-qualification process for their first phase calling for up to 100 turbines, 60km of 33 kV infield cabling, 50 km of 200 kV export cable and a substation. Invitations to tender will be sent out in the first week of April 2005. London Array – Phase 3 (Shell) Location Thames Developer Shell Estuary Construction 2009 Owner/Operator Shell Online 2010 EPC n/a Capacity (MW) 333 Turbine Installation n/a Number of Turbines 111 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 400 Turbine Rating (MW) 3 Planning Status Initial licence granted. Foundation Type Monopile Contracting Status Not begun Water Depth (m) 8 June 2005 54 Douglas-Westwood Ltd & ODE Ltd
  • 55. Scroby Sands – Supply Chain Analysis Final Report 7.1.8 Race Bank Race Bank Greater Wash - 24 km Developer Centrica off Hunstanton, Norfolk Construction 2009 Owner/Operator Centrica Online 2011 EPC n/a Capacity (MW) 500 Turbine Installation n/a Number of Turbines 100-125 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 600 Turbine Rating (MW) 4-5 Planning Status Initial licence granted Foundation Type Steel tripod Contracting Status Not begun Water Depth (m) The licence for this 500 MW project was awarded in December 2003 as part of the UK's second round, and was one of two new awards for Amec. This project lies outside of the UK's territorial waters however new legislation due will allow development. Amec later announced the sale of its 100% stake in Amec Offshore Wind Power Limited to Centrica for an initial cash consideration of just under £3.5 million and deferred consideration of up to £1 million. Amec will continue to support the project under contract to Centrica, through the provision of environmental, technical and management services. 7.1.9 Sheringham Shoal Sheringham Shoal Location Greater Wash - 18 km Developer Scira Offshore Energy off Cromer, Norfolk (Ecoventures & SLP) Construction 2009 Owner/Operator Developer to sell to owner Online 2009 EPC n/a Capacity (MW) 315 Turbine Installation n/a Number of Turbines 63-105 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 380 Turbine Rating (MW) 3-5 Planning Status Initial licence granted. App under preparation Foundation Type Monopile Contracting Status Not begun Water Depth (m) 15 Ecoventures and SLP Energy (under the joint venture Scira Offshore Energy) were awarded this 315 MW site as part of the UK's second round of offshore wind farm licences in December 2003. Scira will develop the project up to construction at which point it is likely to sell the asset to a long-term owner. The project will consist of between 60 and 80 turbines, located in the Greater Wash, about 20 km north of the Norfolk coast, in water depths of between 10 and 20 metres. The original tender was based upon 80 4 MW turbines, however, this remains flexible at this stage. The developers expect planning permission in 2006, with the survey work necessary for the EIA having begun in 2004. The project is already targeted as a one season installation. June 2005 55 Douglas-Westwood Ltd & ODE Ltd
  • 56. Scroby Sands – Supply Chain Analysis Final Report 7.1.10 Thanet Thanet Location Thames Estuary - 11 Developer Warwick Energy km off North Foreland, Kent Construction 2009 Owner/Operator Warwick may sell on Online 2010 EPC n/a Capacity (MW) 300 Turbine Installation n/a Number of Turbines 60-100 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 360 Turbine Rating (MW) 3-5 Planning Status Initial licence granted. App. being prepared. Foundation Type Monopile Contracting Status EIA awarded May Water Depth (m) 12 2004 Contracting not begun Warwick Energy were awarded a licence for this 300 MW site off North Foreland in the Thames Estuary as part of UK's second round. The developer was initially targeting a 2007 construction date although this is believed to be somewhat optimistic, and is expected to slip into 2009. In March 2004 the UK Department of Transport published a report showing that many of the second round projects will be located in areas of heavy shipping traffic. Although many sites were selected to avoid traffic some, including Thanet, are located in high-traffic locations, which may cause problems during the approvals process. Warwick Energy awarded the environmental consultancy contract for the Thanet project in May 2004 to Posford Haskoning. 7.1.11 Triton Knoll Triton Knoll Location Greater Wash - 30 Developer Npower Renewables km off Mablethorpe, Lincs Construction 2010 Owner/Operator Npower Renewables Online 2012 EPC n/a Capacity (MW) 1,200 Turbine Installation n/a Number of Turbines 240-300 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 1,450 Turbine Rating (MW) 4-5 Planning Status Initial licence granted Foundation Type Steel tripod Contracting Status Not begun Water Depth (m) One of the biggest proposed projects in the world, this 1,200 MW giant is under development by Npower Renewables (formerly National Wind Power). It is located in the Greater Wash area, but outside of territorial waters and will therefore require the current Energy Bill to be passed by parliament if the project is to proceed. The Energy Bill would also be a requirement for the required grid capacity to be made available, while development will also depend on a favourable outcome of the 2006 review of the Renewables Obligation. Realistically, this project belongs very much in the next decade and Npower Renewables will concentrate on other projects first. Npower is aiming for consent in 2007, a bird study is underway, and a met mast is due for installation before the end of 2005. The very earliest construction could take place is 2009 (although 2010 is forecast by DWL), and it may be split over several seasons (e.g. 250 MW a year). In March 2004 the UK Department of Transport published a report showing that many of the second round projects will be located in areas of heavy shipping traffic. Although many sites were selected to June 2005 56 Douglas-Westwood Ltd & ODE Ltd
  • 57. Scroby Sands – Supply Chain Analysis Final Report avoid traffic, some, including Triton Knoll, are located in high-traffic locations, which may cause problems during the approvals process. In Triton Knoll's case a large section of the southwest part of the project lies in a main shipping channel where over 1,500 ships a year pass. The MoD have objected to the Triton Knoll project (along with many other second round developments). 7.1.12 Westernmost Rough Westernmost Rough Location Greater Wash - 18 km Developer Total off Aldbrough, Yorks Construction 2009 Owner/Operator Total Online 2010 EPC n/a Capacity (MW) 240 Turbine Installation n/a Number of Turbines 60-80 Foundation Installation n/a Turbine Manufacturer n/a Total Cost (£m) 290 Turbine Rating (MW) 3-4 Planning Status Initial licence granted Foundation Type Monopile or Steel Contracting Status Not begun tripod Water Depth (m) Total make their entry into offshore wind with this 240 MW licence awarded in December 2003 as part of the UK's second licensing round. The site will use turbines between 3 MW and 4 MW in size, making a one season installation possible. It will be interesting to see the contracting strategy that Total adopt for the project, coming from and oil and gas background. In March 2004 The UK Department of Transport published a report showing that many of the second round projects will be located in areas of heavy shipping traffic. Westernmost Rough is one of these sites, and such issues may cause problems during the approvals process. The MoD have objected to this project because of perceived radar issues. June 2005 57 Douglas-Westwood Ltd & ODE Ltd
  • 58. Scroby Sands – Supply Chain Analysis Final Report 7.2 Typical Attributes of a Round 2 Project The UK’s second round projects represent a fundamental step change from the first round projects such as Scroby Sands. Second round projects are typified by a greater number of higher capacity turbines in deeper waters further from shore. Round two projects will in most cases use turbines in the 4 MW and 5 MW class in order to maximise project capacity. Table 7-1: Typical Project Characteristics Factor Details Project Capacity 500 MW Number of Turbines 100 + Turbine capacity 4-5 MW Water Depth 20 metres + Distance from Shore 10 miles + Cable Type HVDC Substation Yes, offshore Year Online 2010 Project Cost £550 million These larger projects will in many cases require the use of an offshore substation. This represents another opportunity for UK content. The other major change is the more widespread use of HVDC cabling. Whilst more expensive than the standard lower-voltage cables, they become increasingly cost efficient as the distance from shore increases. For the purpose of this study typical characteristics of a round two project have been set as above. These attributes will be used to identify the key challenges of scaling-up and the capabilities of East of England and UK companies in meeting them. 7.3 The Key Challenges of ‘Scaling-up’ The UK Offshore Wind Market – The UK will soon be the world leader in total offshore wind capacity when further first round projects are installed in the coming years. The first of the second round UK projects are set to begin construction in 2007/8. UK waters are forecast to see a substantial amount of activity providing the key challenges of the industry can be overcome. Some of the major challenges facing UK offshore wind relate to the sheer growth of the industry that is expected, specifically in the issues surrounding the supply and demand of turbines, foundations, installation vessels and suitable ports. Contract Strategy – The way projects are contracted is set to change as developments increase in size and value and experience is gained. Alternate contracting strategies are examined in Section 5 of the report in more detail. The issues that need addressing within a contract centre on risk, project costs and securing supplies. At present contractors are faced with commercial pressures to achieve cost competitive quotes coupled with uncertainty over associated levels of risk. The offshore wind industry is immature and in many cases the true cost of offshore development has not been fully realised, leading to examples of contractors bidding too low on contracts, resulting in financial losses for some companies keen to enter the market and subsequently limiting the perceived benefits of early-mover advantage. First round projects have an approximate cost of £75 million each. For second round projects the average cost is expected to rise to approximately £550 million. The current trend of balance sheet financing will be superseded by project financing, although there is a great deal of caution amongst financers who are concerned over the levels of associated risk. This confidence will improve as further projects are built and are successful. At present, individual supply and installation contracts are placed very late in the development process. With only a small number of projects approaching construction this year it has not caused any serious problems to equipment and service supply lead times. However, within a year the problem could be significantly exacerbated as a larger number of projects are initiated within a climate June 2005 58 Douglas-Westwood Ltd & ODE Ltd
  • 59. Scroby Sands – Supply Chain Analysis Final Report of limited contractor capacity and availability. Second round projects will therefore have to adopt a contracting strategy where contracts are awarded with a longer lead time if they are to secure the limited fabrication resources and busy installation contractors in the high-demand market place. Development contracting is expected to move from the current focus on the turbine supplier to being EPIC based for the remainder of the first round projects. This approach will be employed for some second round projects but it is anticipated that the partnership/alliance strategy will increasingly be adopted. Logistical – For the second round projects in The Greater Wash and The Thames Estuary strategic areas, the ports in the East of England are ideally located for logistical and construction bases. Lowestoft and Great Yarmouth are the two main ports that are actively seeking involvement in the offshore wind industry, having already been the construction base for the Scroby Sands project. A significant proportion of the content for Scroby Sands came from the use of Lowestoft and Great Yarmouth as logistical bases for the project. Great Yarmouth has long been planning the construction of an Outer Harbour. This development would make the port an extremely capable construction base for the second round projects. Construction must be complete by 2008 for the project’s finance to be issued. There is some doubt over whether this timescale is realistic (although it should be noted that many round two projects are themselves facing delays). If the East of England is to gain full value from the second round projects the Outer Harbour is essential. No other regional ports can realistically support the construction of the large round two projects scheduled for construction post 2007 in their own right and would have to form part of a multi-port logistics package with the attendant risks and costs. The need for deepwater ports with significant laydown and pre-assembly facilities is very high. Mainland Europe has a selection of high-quality ports that are currently more suitable for an offshore wind base. The work will go to Europe if the UK and East of England cannot offer comparative facilities. Turbines – The second round projects off the UK will make use of the cutting edge in wind turbine design in an attempt to maximise a site’s total installed capacity and, therefore, output. There are a number of important issues surrounding the use of 4-5 MW class turbines. The first of these concerns the supply of the turbines. Commercial production has yet to begin on any 4 MW or above turbine, the only installed models are prototypes – one 4.5 MW turbine has been installed at a near-shore location off Germany for instance. There is therefore a concern as to whether the leading turbine manufacturers will have advanced their designs to commercial production by the time the UK’s second round projects are at a contracting stage. Secondly, the demand on the manufacturers to produce enough turbines will be extremely high. Many of the second round projects will feature hundreds of turbines and there will be multiple projects entering construction simultaneously. With other European countries competing for turbine supply contracts (Germany’s offshore wind industry will pick-up at the same time as the UK’s second round is being built), there is a real question over the ability of the leading manufacturers to scale up production. The turbine manufacturers are therefore faced with huge technological and production demands because of the growing market and because of the industry’s constant drive for bigger and better turbines. Although the industry is still young there has been a tremendous drive to using the highest capacity turbines available. Project developers are so concerned with maximising site output that they are pushing manufacturers to rapidly develop and manufacture the next generation of turbines. This is creating a large amount of risk as the turbine manufacturers are effectively selling turbines straight off the design board without extensive testing. Foundations and Towers – The second round of UK projects will predominantly use steel monopile and steel tripod foundations. Monopile foundations are well proven in the industry whereas steel tripods have yet to be used. Monopiles can be used for sites up to approximately 25-30 metres of water depth. Steel tripods are required for deeper waters. Manufacturing capacity for rolled steel offshore wind foundations and towers in Europe is low. There are only a small number of manufacturers currently working in the sector, creating a potential future pinch point for the industry. Early contracting will be required to secure scarce manufacturing June 2005 59 Douglas-Westwood Ltd & ODE Ltd
  • 60. Scroby Sands – Supply Chain Analysis Final Report capacity, especially as many of the plants will have their total annual output filled by a single wind farm. Installation Vessels – The installation of the large-scale wind farms of the last four years has been met by the turbine and foundation installation vessels available in the marketplace. Jack-up rigs from established oil and gas contractors installed the first projects, then saw specialist offshore wind installation contractors such as A2Sea, Mammoet Van Oord and Marine Projects International enter the market with purpose built vessels. These vessels have proved extremely efficient at installing the 2-3 MW turbines on current waters. Second round projects are far more challenging. The sites themselves are further offshore in deeper waters. Additionally, the increased size, weight, and required lifting height of the next generation of turbines will be problematic for installation contractors. Some of these contractors are planning to upgrade their vessels to cope with the deeper waters and larger turbines whilst others are building new vessels. With larger number of higher capacity turbines being installed and a larger total number of projects being installed each season the demands on the installation contractors will be extremely high and alternative solutions involving a mixture of purpose built and existing vessels may need to be considered. Steel – The price of steel is particularly important to the offshore wind industry, being the principal raw material used in the manufacture of steel towers, monopile and tripod foundations and transition pieces. Any change in steel prices therefore has a considerable impact on manufacturing costs and therefore project economics. As the offshore wind sector really begins to take off, it will have a strong effect on the steel market. As an example, the UK’s Beatrice project is expected to use over 250,000 tonnes of steel for the fabrication of the towers and foundations. Beatrice is a 1 GW project that will use tripod foundations. Although it is someway off construction, and seems like a very large project, it is wind farms of this size that will be the future of offshore wind. 5 MW turbines and tripod foundations will in time become common. The factor of steel price (and perhaps more importantly, steel supply) will be extremely relevant to the industry. At the time of writing, steel prices have breached $700 per tonne, more than double the price two years ago. The gradual price rises steepened at the start of 2004 and grew at an increased rate throughout the year. Many construction companies and manufacturers have been hit hard, with the increased prices of their primary raw material affecting balance sheets significantly. Current price rises follow a period of cheap steel supplies with steel famously having been quoted as being cheaper than potatoes in the past. Indeed, the price of steel has risen slower than the rate of inflation since the 1980s. Current trends are a result of growing steel demand from southeast Asia, in particular China, where huge increases for the last few years are driving the high prices. Demand increased by nearly 40 million tonnes in 2003. There are few signs that demand for steel has slowed in light of the higher prices. UK structural steel fabrications are at their highest levels of output since 1990. Availability of steel rather than its cost is the prime concern of manufacturers. 7.4 Round 2 Capability Assessment and Analysis This section considers potential UK and East of England content in value and hours within a typical round two project of 500 MW (the full attributes of which are presented above) under three scenarios. The scenarios show; • High Case – the maximum level of content achievable by the UK and East of England • Proven Case – the proven capabilities from Scroby Sands scaled-up to a Round 2 project • Low Case – in which the major contracts are missed by the UK and East of England June 2005 60 Douglas-Westwood Ltd & ODE Ltd
  • 61. Scroby Sands – Supply Chain Analysis Final Report 7.4.1 High-Case - Maximum Potential Content These figures show the maximum perceived potential UK and East of England content possible assuming; a UK developer, use of an East of England port and use of UK and East of England contractors where possible. Table 7-2: High-Case – Maximum Potential UK and East of England Value (£’000s) EofE £000s Total UK Potential UK % Potential EofE % Development Design 4,000 4,000 100% 400 10% Environmental Monitoring 500 500 100% 492 98% Insurance/Legal 12,000 12,000 100% 11,652 97% Surveys 750 750 100% 750 100% Project Management 11,000 10,900 100% 5,929 54% Detailed Design 6,000 6,000 100% 6,000 100% Procurement & Manufacture 301,250 131,000 44% 773 0% Transport & Delivery 7,500 7,500 100% 1,425 19% Onshore Pre-Assembly 16,000 14,400 90% 13,360 84% Onshore Installation 30,000 30,000 100% 30,000 100% Offshore Installation 130,000 130,000 100% 49,970 38% Commissioning 16,000 14,400 90% 14,352 90% Operations & Maintenance 45,000 38,500 86% 35,235 78% Other Misc. Costs 6,000 5,300 88% 5,286 88% Total 586,000 405,250 69% 175,624 30% With current capabilities the maximum potential content for a second round project is approximately £405 million for the UK. £176 million of this could be achieved by the East of England. This represents 69% of the total project expenditure being secured by UK companies and 30% of the total awarded to East of England companies. Whilst this is a high level of domestic content, there still remain limiting factors on UK industry. At the present time there are no UK-based turbine manufacturers. With the turbine being central to the offshore wind supply chain and a major item of expenditure, the UK and East of England will therefore automatically miss out on a very significant amount of work and value creation. Table 7-3: High-Case – Maximum Potential UK and East of England Hours Hours Total UK Potential UK % EofE Potential EofE % Development Design 73,118 73,118 100% 9,286 13% Environmental Monitoring 8,250 8,250 100% 8,162 99% Insurance/Legal 3,428 3,428 100% 3,260 95% Surveys 7,500 7,500 100% 7,500 100% Project Management 218,743 217,212 99% 101,808 47% Detailed Design 149,284 149,284 100% 149,284 100% Procurement & Manufacture 773,557 559,282 72% 17,018 2% Transport & Delivery 39,184 39,184 100% 8,307 21% Onshore Pre-Assembly 204,813 189,042 92% 165,284 81% Onshore Installation 423,801 423,801 100% 423,801 100% Offshore Installation 417,207 417,207 100% 299,555 72% Commissioning 236,552 201,069 85% 201,069 85% Operations & Maintenance 539,770 454,395 84% 421,020 78% Other Misc. Costs 104,226 83,798 80% 83,798 80% Total 3,199,433 2,826,570 88% 1,899,152 59% From a total of approximately 3.2 million hours involved in the development, construction and first 5 year’s operation of a second round UK project, the UK has a maximum potential of 88% of this work which equates to approximately 2.8 million hours. 59%, or 1.9 million hours, of the work associated June 2005 61 Douglas-Westwood Ltd & ODE Ltd
  • 62. Scroby Sands – Supply Chain Analysis Final Report with the project could be undertaken in the East of England. The gap between the UK content and the percentage of that which is East of England content is due to one of the key weaknesses of the region - the lack of manufacturing capability. 7.4.2 Proven-Case – Proven Capability The proven-case scenario takes the proportion of UK and East of England content (in terms of both value and man-hours) achieved on Scroby Sands and scales them up to a typical round two project. This assumes that the level of content achieved on Scroby Sands is replicable in a second round project. Table 7-4: Proven-Case – Proven UK and East of England Value (£’000s) £000s Total UK Potential UK % EofE Potential EofE % Development Design 4,000 2,637 66% 423 11% Environmental Monitoring 500 500 100% 426 85% Insurance/Legal 12,000 12,000 100% 1,423 12% Surveys 750 750 100% 715 95% Project Management 11,000 10,577 96% 5,320 48% Detailed Design 6,000 1,815 30% 972 16% Procurement & Manufacture 301,250 130,040 43% 62 0% Transport & Delivery 7,500 1,776 24% 337 4% Onshore Pre-Assembly 16,000 13,411 84% 11,738 73% Onshore Installation 30,000 30,000 100% 30,000 100% Offshore Installation 130,000 17,305 13% 2,203 2% Commissioning 16,000 11,697 73% 4,509 28% Operations & Maintenance 45,000 37,220 83% 33,593 75% Other Misc. Costs 6,000 4,926 82% 1,446 24% Total 586,000 274,652 47% 93,169 16% If contracts were placed on a typical round two project in the same way that they were on Scroby Sands UK content could exceed £274 million, while the value of contracts placed within the East of England would be over £93 million. Whilst this scaling up is unlikely to be replicated piece-by-piece on an actual project the potential has been established. Table 7-5: Proven-Case – Proven UK and East of England Hours EofE Hours Total UK Potential UK % Potential EofE % Development Design 73,118 50,403 69% 9,279 13% Environmental Monitoring 8,250 8,250 100% 7,522 91% Insurance/Legal 3,428 3,428 100% 674 20% Surveys 7,500 7,500 100% 7,156 95% Project Management 218,743 208,168 95% 86,712 40% Detailed Design 149,284 44,613 30% 24,311 16% Procurement & Manufacture 773,557 546,032 71% 1,159 0% Transport & Delivery 39,184 11,633 30% 2,449 6% Onshore Pre-Assembly 204,813 178,380 87% 132,442 65% Onshore Installation 423,801 423,801 100% 423,801 100% Offshore Installation 417,207 128,210 31% 31,527 8% Commissioning 236,552 163,156 69% 96,552 41% Operations & Maintenance 539,770 444,643 82% 409,319 76% Other Misc. Costs 104,226 73,527 71% 26,522 25% Total 3,199,433 2,291,745 72% 1,259,425 39% In terms of man hours, a typical round two project developed, contracted and built in the same way as Scroby Sands would result in almost 2.3 million hours of work for the UK, 72% of the total hours on the project. East of England content is a large proportion of this with approximately 1.3 million hours, or 39% of the projects total hours. June 2005 62 Douglas-Westwood Ltd & ODE Ltd
  • 63. Scroby Sands – Supply Chain Analysis Final Report 7.4.3 Low-Case – A Missed Opportunity As an alternative scenario the effects of major contracts not being placed in the UK and the East of England, is examined below. This scenario assumes that a non-UK port, such as Rotterdam, is used in place of an East of England port for construction and that there is no UK manufacturing and installation content on the offshore components of the project (i.e. turbines, foundations and cabling are made on the continent and installed by non-UK contractors). This low-case scenario does, however, assume that the majority of operations and maintenance is still conducted from the East of England and a local base of operations is established within the region. Table 7-6: Low-Case – UK and East of England Value (£’000s) UK Potential UK % EofE £000s Total Potential EofE % Development Design 4,000 2,637 66% 422 11% Environmental Monitoring 500 500 100% 427 85% Insurance/Legal 12,000 12,000 100% 1,424 12% Surveys 750 750 100% 716 95% Project Management 11,000 9,580 87% 4,776 43% Detailed Design 6,000 1,080 18% 540 9% Procurement & Manufacture 301,250 0 0% 0 0% Transport & Delivery 7,500 0 0% 0 0% Onshore Pre-Assembly 16,000 0 0% 0 0% Onshore Installation 30,000 30,000 100% 30,000 100% Offshore Installation 130,000 0 0% 0 0% Commissioning 16,000 5,021 31% 2,575 16% Operations & Maintenance 45,000 32,473 72% 29,176 65% Other Misc. Costs 6,000 3,526 59% 805 13% Total 586,000 97,567 17% 70,862 12% Of a total expenditure on the project of £586 million this low-case scenario would result in just £98 million, or 17% of the total project cost, UK content, while only £71 million, or 12%, of the total value of the project would be sourced in the East of England. In the absence of regional involvement being facilitated through a decision to establish an operations base through a regional port a significant proportion of this 12% content would be under threat producing a worst case scenario with very limited benefits being seen by the East of England. Table 7-7: Low-Case – UK and East of England Hours EofE Hours Total UK Potential UK % Potential EofE % Development Design 73,118 50,404 69% 9,277 13% Environmental Monitoring 8,250 8,250 100% 7,521 91% Insurance/Legal 3,428 3,428 100% 674 20% Surveys 7,500 7,500 100% 7,156 95% Project Management 218,743 190,796 87% 73,116 33% Detailed Design 149,284 27,012 18% 13,506 9% Procurement & Manufacture 773,557 0 0% 0 0% Transport & Delivery 39,184 0 0% 0 0% Onshore Pre-Assembly 204,813 0 0% 0 0% Onshore Installation 423,801 423,801 100% 423,801 100% Offshore Installation 417,207 0 0% 0 0% Commissioning 236,552 63,843 27% 36,847 16% Operations & Maintenance 539,770 389,720 72% 356,750 66% Other Misc. Costs 104,226 51,482 49% 16,928 16% Total 3,199,433 1,216,236 38% 945,577 30% Even in this low-case scenario the hours of work done in the UK is 38% of the project’s total work, while East of England content is 30%, driven principally by onshore installation and operations and maintenance related activities. This is a very high proportion and illustrates the region’s capability to generate considerable value, especially in terms of employment, for the projects scheduled to be built off the region’s coastline. June 2005 63 Douglas-Westwood Ltd & ODE Ltd
  • 64. Scroby Sands – Supply Chain Analysis Final Report 7.5 Forecast Content in East of England Round 2 Projects Using the three scenarios for alternative levels of UK and East of England content in a typical Round 2 project, market forecasts have been created for all 12 Round 2 projects defined as being within the East of England’s area of influence. The forecasts below show forecast development and construction costs for second round projects. No data for operations and maintenance has been included at this stage. Cost is attributed to the year the project is scheduled to come online. 7.5.1 UK Round 2 Content 3000 Low-Case Proven-Case 2500 High-Case Total Cost 2000 Expenditure £m 1500 1000 500 0 2008 2009 2010 2011 2012 Figure 7-2: Forecast UK Content in East of England Round 2 Projects Table 7-8: Forecast UK Content in East of England Round 2 Projects £m 2008 2009 2010 2011 2012 Total Low-Case 12 214 398 159 220 1,002 Proven-Case 33 602 1120 447 619 2,821 High-Case 49 889 1653 660 913 4,163 Total E of E R2 70 1,285 2,390 954 1,320 6,019 Total forecast expenditure on the Round 2 projects in the two strategic areas of relevance to the East of England amounts to approximately £6 billion. The lowest likely content achievable by the UK is forecast to be £1 billion. If a similar contracting methodology to Scroby Sands was used, UK content could be as high as £2.8 billion. The maximum credible UK content is forecast at approximately £4.2 billion. The key area where the UK cannot compete is turbine manufacturing. This high-value activity is of huge importance because of its key role in the supply chain. Getting a turbine manufacturer to establish a large-scale and locally sourced manufacturing presence in the UK would be extremely beneficial. As an intermediate step, the establishment of further assembly plants similar to that operated by Vestas Celtic would ensure that levels of UK content across the industry will be more secure. The UK has sufficient fabrication and installation capabilities to cope with Round 1 projects but lacks the both the capability and capacity to gain maximum attainable value from the Round 2 projects. There is currently not sufficient capacity amongst contractors to secure the forthcoming work and European players will capitalise on this weakness. June 2005 64 Douglas-Westwood Ltd & ODE Ltd
  • 65. Scroby Sands – Supply Chain Analysis Final Report 7.5.2 East of England Round 2 Content 800 Low-Case Proven-Case 700 High-Case 600 Expenditure £m 500 400 300 200 100 0 2008 2009 2010 2011 2012 Figure 7-3: Forecast East of England Content in Regional Round 2 Projects Table 7-9: Forecast East of England Content in Regional Round 2 Projects £m 2008 2009 2010 2011 2012 Total Low-Case 9 155 289 115 160 728 Proven-Case 11 204 380 152 210 957 High Case 21 385 716 286 396 1804 Total E of E R2 70 1,285 2,390 954 1,320 6,019 From the total forecast expenditure on the twelve Round 2 projects within the area of influence of the East of England, and assuming that all twelve R2 projects could be constructed using East of England ports to provide the basis for minimal (operations base) to maximal (full regional content using regional ports as construction and operations bases), the East of England value is forecast to be between £728 million and £1.8 billion. Scaled up levels of regional content achieved within Scroby Sands on all Round 2 projects in the two strategic areas would result in a forecast total spend of £957 million within the region. Whilst these scenarios assume that the East of England has a role to play in all twelve R2 projects, even securing a minimal role in half that number would establish the offshore wind sector as a significant industry within the region. The East of England can attain a high level of content on the Round 2 projects but the region is limited in terms of the areas in which it has the capabilities to work. Development design, surveying and project management are, for example, strong areas for the region. It is, however, the high-value areas, such as fabrication and offshore installation, where the East of England has not presently capitalised on the opportunities open to it. Whilst the East of England is home to some highly capable installation contractors, it lacks in particular contractors with a track record in foundation and turbine installation . One crucial determinant of future regional content will be the use of a regional port as a pre-assembly and construction base for projects. These tasks were completed in Lowestoft and Great Yarmouth on the Scroby Sands project and resulted in a high level of local content. However, the region’s ports face tough competition from mainland European ports and other English regions; with the South East able to target projects in the Thames, and East Midlands, Yorkshire and Humberside and the North East able to target projects in the Greater Wash, and without major improvements, such as Great Yarmouth’s Outer Harbour, the work is likely to go elsewhere. June 2005 65 Douglas-Westwood Ltd & ODE Ltd
  • 66. Scroby Sands – Supply Chain Analysis Final Report 7.5.3 Man-Hours on a Typical Round 2 Project 2,500,000 UK EoE 2,000,000 Man-Hours 1,500,000 1,000,000 500,000 0 Low-Case Proven-Case High-Case Figure 7-4: UK and East of England Man-Hours for a Typical Round 2 Project Table 7-10: UK and East of England Man-Hours for a Typical Round 2 Project Man-Hours UK EofE Low-Case Content 826,516 588,827 Proven-Case Content 1,847,101 850,106 High-Case Content 2,372,175 1,478,132 Total Typical R2 Project 2,659,663 Note: These figures do not include operations and maintenance Total man-hours on the development and construction of a typical Round 2 project are forecast to total over 2.6 million, of which the UK is expected to achieve between 0.83 and 2.4 million man- hours. The East of England is forecast between 0.59 and 1.5 million hours work on a typical project. Proportionally these figures are much higher than those for the value presented above. The key areas in which the UK and East of England can achieve maximum content are mainly the most time- consuming ones such as design and project management. Onshore installation is a further work- package where the East of England is strong. However, the UK and East of England currently lack capabilities in the highest value areas of wind farm construction but these same areas are those involving a proportionally low work load. Therefore the UK and East of England can expect to achieve a consistently high level of work for the Round 2 projects even if it misses out on some of the most valuable contracts involved in fabrication and construction. The East of England demonstrated its abilities on Scroby Sands and has the potential to scale-up involvement in its key areas to meet the needs of the Round 2 projects. June 2005 66 Douglas-Westwood Ltd & ODE Ltd
  • 67. Scroby Sands – Supply Chain Analysis Final Report June 2005 67 Douglas-Westwood Ltd & ODE Ltd
  • 68. Scroby Sands – Supply Chain Analysis Final Report 8 Intervention Strategies and Future Research The Scroby Sands project represents a test case for assessing the relative recent success of UK and regional companies in securing work within the UK offshore wind industry and the robustness of this level of penetration within the emerging international offshore wind energy supply chain. Whilst there are limitations on using the Scroby Sands project as a benchmark for future projects, it is important to recognise the value of using practical experience and project specific data to identify the lessons that should be learnt in developing strategies to provide the opportunity for significant and secure UK and regional participation in the growth of the offshore wind supply chain. Current and future support at national and regional levels from the public sector for the growth of the industry in terms of the economic development opportunity that it represents, as opposed to the current market primarily driven by the national targets for renewable electricity generation (through the Renewables Obligation), will rely upon a detailed knowledge and understanding of the commercial factors effecting the development of the UK market.This will include thechallenges to significant UK and more localised participation in the supply chain, both through the current development of Round 1 projects and scaling up for the much larger and technically complex Round 2 projects. 8.1 Business Development Strategy Current and future support for a significant, robust and growing level of UK and regional penetration into the offshore wind supply chain will need to continue to focus upon three complementary approaches: • Support for UK companies that have already secured opportunities within the sector and maintaining the robustness of early supply chain penetration. • Engagement with UK companies who are aware of the sector and whose competencies and capability should allow for their pursuit of supply chain opportunities, assisting them in understanding and reacting to industry developments and supporting them as they plan for market entry. • Exploring diversification opportunities for UK companies unaware of the sector, prioritising gaps in the supply chain and key competencies and capabilities that could allow for a direct transfer of skills into the market. Given the role of many non-UK companies in the development of the UK market, particularly within component and equipment supply, support for inward investment and joint venturing will continue to be an integral part of the overall strategy to deliver UK supply chain development. Underpinning all business and industry development strategies is the need for detailed market intelligence with widespread dissemination of information on the state of the market, the workings of critical industry players (notably: developers, turbine suppliers and major contractors), the practical experience of UK companies that have penetrated or are attempting to penetrate the supply chain and consideration of the principal opportunities for, and challenges to, successful UK supply chain development. 8.1.1 UK: Principal Opportunities and Challenges UK content was relatively high within the Scroby Sands offshore wind farm and was built upon successful penetration of both equipment and service supply across all three phases of the project. Whilst the most significant phase in terms of overall contract value and man hours was the two year construction phase, the level of UK company content in the development and operation phases of the project should not be undervalued. Indeed, further support for increasing and maintaining UK content within the development phase is vital given the need for professional services in the form of environmental and technical assessments and surveys, legal and financial advice, and the relationship between development design and detailed design activities as a project moves into construction. The value of the contracts awarded to support any project during its operation also have a significant effect on overall UK content although their greatest effect is at a local level. This is a significant opportunity for replication in the future both in terms of contract value and employment. June 2005 68 Douglas-Westwood Ltd & ODE Ltd
  • 69. Scroby Sands – Supply Chain Analysis Final Report The robustness of the levels of UK penetration of the Scroby Sands construction phase will be tested on future projects. This area is one of the principal challenges for maintaining relatively high levels of UK content, as these early movers on the equipment supply side of the industry are subject to extensive financial risk in maintaining capability without a significant volume of contracting opportunities open to them and their experiences can act as a deterrent for other companies wishing to explore contracting opportunities in the future. It is also noted that whilst these companies have secured opportunities for supply by becoming one of a limited number of preferred suppliers for critical components, this is not a secure supply chain role as cost competition will continue between these suppliers and their counterparts for each individual project. Opportunities to increase UK content beyond current capability will arise primarily as and when inward investment or joint venture opportunities encourage the establishment of further turbine assembly plants or key component manufacturing. With regard to the remaining Tier 1 categories in the construction phase for Scroby Sands, the role of UK companies was principally dependent on the critical decision to use a UK port as the base of construction logistics and the requirements for engineering support services to assist with the detailed design, project management, onshore equipment assembly and offshore installation elements of the project. With the exception of project management, which by its very nature is dependent on the requirements of the project developer, national contributions in terms of contract value within these categories were far lower than those in man hours. Such a trend reflects the role of UK companies at lower tiers of the supply chain, implying that this area represents both an opportunity for securing greater participation in the future as UK companies build upon their experience to secure higher value contracts, and a challenge, given international competition in the provision of marine engineering expertise. The overall robustness of the levels of UK content achieved at Scroby Sands in respect of future developments will be dictated by the need for individual contractors and developers to secure these engineering services from UK companies with expertise in relevant fields, particularly oil and gas industry experience. The challenge for maintaining and further developing these areas rests fundamentally on the need to influence the choice of developers in securing a UK construction base and in ensuring that UK companies with the necessary expertise and technical competencies are able to market their services to the project developers and principal contractors. It is apparent that current UK penetration levels in all three phases of the project have been secured as a result of a number of companies making a conscious effort to develop sectoral experience and that these companies represent only a small proportion of those with the technical competencies to secure contracts within the supply chain. With the exception of Procurement and Manufacture, where penetration levels are not expected to rise without significant interventions to secure additional component manufacture or turbine assembly within the UK, all other areas of the supply chain have the potential to be developed, or where already significant content levels have been achieved, secured. The critical opportunity for future development based upon the experience at Scroby Sands is that of offshore installation which stands clear from all other categories in terms of the potential to secure a significant increase in UK content in a high value area of the construction phase. The relative effect on UK content of contracting approaches is less clear and is likely to require further research. Future contracting strategies within the industry are likely to offer the opportunity for greater UK participation, however, intrinsic issues such as the complexities of procurement procedures, engagement with suppliers by developers during the development and detailed design phases of a project and tendering timetables all represent challenges to UK companies. 8.1.2 East of England: Principal Opportunities and Challenges East of England content was a significant component of overall UK content in the Scroby Sands wind farm, however, regional contributions were highly dependent upon the key characteristics of this project, notably the decision to secure Project Management from a local company and the establishment of regional ports as construction and operations bases. As a proportion of overall UK content, high levels of regional participation were achieved in the development and operation phases of the project and as for the UK as a whole, it is these areas which represent the principal opportunity to increase and maintain regional content within future projects. June 2005 69 Douglas-Westwood Ltd & ODE Ltd
  • 70. Scroby Sands – Supply Chain Analysis Final Report Whilst the region was successful in offering a diverse range of professional and technical services during the development phase, it was the operations and maintenance phase which was the largest single contributor to regional content showing the value of securing local ports to provide logistical support to the project. However, regional content in the Construction phase was limited by the relative weakness in securing contracts within the high value Tier 1 category of Procurement and Manufacture given limited equipment supply or key component manufacturing capabilities within the East of England. The challenge for the region is, therefore, to examine whether this can be addressed by indigenous companies diversifying from similar manufacturing activities or by inward investment and joint venturing initiatives. The role of regional companies within other Tier 1 categories in the construction phase reflects the critical decision to use regional ports as the base of construction logistics. Scroby Sands also demonstrates the ability of the region, primarily through its extensive oil and gas capability, to offer engineering support services to assist with project management, onshore equipment assembly and onshore installation elements. Regional companies face the same challenge and opportunity as at a wider UK level in marketing their key capabilities to developers and contractors, building often upon strong local knowledge and relationships with regional ports and developing their role from provision of labour intensive activities at lower tiers of the supply chain to develop the experience necessary to tender for higher value contracts. It is, however, difficult to determine how robust regional penetration of the supply chain across all three phases of any development will prove to be. The principal observation is that the primary regional benefit accrues from the opportunities for local company involvement driven by securing the use of local ports as the centres for logistical activities during the construction and operation phases of any given project. Table 8-1: East of England Potential Capability – Tier 1 Component High Medium Low Environmental Monitoring Project Management Development Design Surveys Offshore Installation Procurement & Manufacturing Insurance / Legal Transport & Delivery Detailed Design Onshore Installation Onshore Pre-Assembly Commissioning Operations & Maintenance As with UK content, current regional penetration levels in all three phases of the project have been secured as a result of a small number of companies making a conscious effort to develop sectoral experience and that these companies represent only a small proportion of those with the technical competencies to secure contracts within the supply chain. The greatest challenge at a regional level in converting potential capability and known competencies into contracting opportunities for regional companies is the establishment of a consolidated base of experienced suppliers able to raise the profile of the industry and stimulate greater regional participation. With the exception of Procurement and Manufacture, where penetration levels are not expected to rise without significant intervention to secure additional component manufacture or turbine assembly within the region, the majority of other areas of the supply chain have the potential to be further developed. The most prominent Tier 1 categories for future development in the region include Insurance / Legal, Detailed Design and Offshore Installation, reflecting the wider UK position. Contracting issues are expected to mirror those noted for the UK as a whole, although given that the likely market entry opportunities for regional companies will be at lower tiers of the supply chain, market intelligence will be critical. 8.2 Action Plan Extensive UK and regional economic benefits could be accrued if the Scroby Sands experience can be replicated for future Round 2 projects. Indeed, these levels could even be exceeded if current UK and June 2005 70 Douglas-Westwood Ltd & ODE Ltd
  • 71. Scroby Sands – Supply Chain Analysis Final Report regional capabilities were realised, however, there are significant challenges to be overcome if Scroby Sands is to be considered a benchmark rather than a high watermark for supply chain penetration. Limited economic benefits, as illustrated within the Low Case scenario, will largely be a result of a failure to establish and secure UK and regional content in the critical Tier 1 categories of Procurement & Manufacture and Offshore Installation, and the knock-on effect of decisions to use non-UK ports as the base for construction logistics on Tier 1 categories which are primarily related to engineering support services. Interventions to secure maximum UK and regional content in future developments will require action primarily at a regional level, although there are a number of critical areas where national action will be necessary. In any event, it is imperative that there is continued and strengthened collaboration between regions and coordination through national Government and national agencies, including industry trade associations. 8.2.1 UK Strength of the UK Market – government support remains fundamental to offshore wind activity, and will continue to be so for the foreseeable future. As such, it is seen to be vital that the UK Government continues to show commitment to the sector and maintains market conditions that will support the transition from Round 1 projects such as Scroby Sands to larger and more technically complex Round 2 projects in the period up to and beyond 2010. Such support is vital to the economics of the sector, both in terms of project financing and creating the confidence among suppliers for required long-term investments. Manufacturing Capability – the key weakness of the UK supply chain in the offshore wind sector is the limited level of manufacturing capability in terms of key component manufacture and turbine assembly. Addressing this structural weakness will require interventions across the UK with extensive intra-regional collaboration and coordination at a national level, primarily through encouragement of inward investment by wind turbine manufacturers, but also through continued support for those UK equipment supply companies that have already succeeded in penetrating international supply chains. Research and Development – it is widely accepted that the UK market will not evolve unless it is able to address the technical challenges presented by the transition to larger projects which are intended to deliver the bulk of planned capacity. Direct support from Government for innovation within the UK supply chain will aid in ensuring that such projects are economic and also strengthen the opportunities for UK companies to secure a prominent role in the delivery of this capacity. 8.2.2 East of England It is anticipated that regional supply chain development activities will broadly fall within the following four categories: • Knowledge Holding and Transfer – provision of market intelligence • Relationship Building – facilitating business to business linkage • Innovation Support – funding and support for small and medium sized enterprises • Strategic Support – inward investment and public sector infrastructure development. This support must have as its core assisting regional companies in understanding how to enter the supply chain to offshore wind developments and how to better develop both their position within the supply chain and their offering to industry. This can be achieved through the dissemination of information as to market opportunities and potential means of market entry, through initiatives such as the development of a regional resource to monitor OJEC notifications. Further initiatives are also required in facilitating the capture and dissemination of lessons learnt throughout the supply chain in both project implementation and product innovation and will be primarily addressed by an ongoing review of Round 1 and Round 2 projects as they are developed. It is also essential that business support agencies continue to seek to bring together the supply chain within this emerging industry by facilitating a high level of business-to-business contact and initiating dialogue throughout the supply chain and with key industry players, notably project developers, major contractors and turbine manufacturers. Such relationship building will not only facilitate regional June 2005 71 Douglas-Westwood Ltd & ODE Ltd
  • 72. Scroby Sands – Supply Chain Analysis Final Report suppliers’ access to project supply chains but also assist in developing the various synergies that are apparent throughout the supply chain to offshore wind and other related industries. The final fundamental area of business support required within the region relates to the facilitation of potential inward investment into the region and the development of public sector infrastructure. The key area of required inward investment relates to the potential location of manufacturing capability within the region though such investment decisions are by their very nature fraught with intricacy. The development of regional infrastructure is perhaps the most likely means of short term strategic support within the East of England with the construction of Great Yarmouth’s Outer Harbour and the Offshore Renewable Energy Centre in Lowestoft. The Outer Harbour holds particular significance, as without the implied significant investment in regional ports the East of England runs the risk of losing a significant proportion of the content realised within Scroby Sands where the ports of Great Yarmouth and Lowestoft were used as construction bases. 8.3 Recommendations for Future Research As the Scroby Sands project is only the second Round 1 project to be constructed in the UK, it would be advisable for further supply chain analyses to be undertaken for other UK Round 1 developments in construction or which have been commissioned, using the methodology devised for this assessment. This would provide comparative assessments of the levels of UK and regional supply chain penetration experienced and to confirm if critical issues such as decisions over centres of construction and operation logistics are giving rise to similar effects. The analysis of Scroby Sands has required a number of assumptions in respect of the operation phase of the project. Whilst a five year period was used in this study to reflect the relationship between the developer and Vestas Celtic, who, as turbine supplier, are providing ongoing operation and maintenance support for the project, further work should be undertaken to assess the true life costs of operating and maintaining offshore wind farms. The findings of this report underline the importance of the Tier 1 category of Procurement & Manufacture. This is a high level assessment and further analysis of the breakdown of expenditure relating to the procurement of component parts and manufacture of nacelles utilised within past, present and future offshore wind developments would allow for a more detailed assessment of the opportunities and challenges to higher levels of UK content in this area of the supply chain. The potential effect of contracting strategies on the level of UK and regional content is also still open to question. As the UK market develops and significant number of Round 1 projects are developed, placing greater pressure on the supply chain and requiring greater collaboration between developers and suppliers, the relative effects of more open tendering procedures and a variety of contracting approaches will become apparent, confirming whether it is the contracting strategies or other factors which are having a bearing on opportunities for greater UK content. June 2005 72 Douglas-Westwood Ltd & ODE Ltd
  • 73. Scroby Sands – Supply Chain Analysis Final Report 9 APPENDICES Appendix 1: Scroby Sands Supply Chain Analysis – Contract Hierarchy June 2005 73 Douglas-Westwood Ltd & ODE Ltd
  • 74. Scroby Sands – Supply Chain Analysis Draft Report Scroby Sands Project - Supply Chain Study Overall Project Cost Hierarchy (Tier 1/Tier 2) 2.11 E.ON UK Internal 2.22.1 2.1 Project Management Vestas Internal 2.22.1.1 Development KBR 2.22.1.2 Phase 2.12 E.ON UK External Vestas Internal 2.22.2.1 HS&E 2.22.2.2 Electrical Interface Design 2.22.2.3 2.21 2.22.2 Monopiles 2.22.2.4 E.ON UK Internal Design Tower Structure 2.22.2.5 Tower Internals 2.22.2.6 Nacelles 2.22.2.7 2.22 SCADA 2.22.2.8 Vestas Site Surveys 2.22.2.9 1.0 Misc 2.22.2.10 Total Project Cost 2.23 Hogenboom UK Vestas Internal 2.22.3.1 2.22.3 Monopiles 2.22.3.2 Procurement & Manufacture WTG Towers 2.22.3.3 2.34 Nacelles 2.22.3.4 Pirelli Blades 2.22.3.5 HV Cables 2.22.3.6 Misc. 2.22.3.7 2.2 2.35 Construction EdF Phase Vestas Internal 2.22.4.1 Onshore Construction Base 2.22.4.2 2.36 Offshore Installation Vessels (2) 2.22.4.3 Environmental Monitoring Transport & Delivery 2.22.4.4 2.22.4 WTG Onshore Fit-out 2.22.4.5 Construction Temporary Navaids 2.22.4.6 2.37 Export Cable Installation 2.22.4.7 Insurance Inter-Array Cable Installation 2.22.4.8 Scour Protection 2.22.4.9 Commissioning 2.22.4.10 2.38 Documentation 2.22.4.11 Other Misc.Costs Misc. 2.22.4.12 2.31 E.On UK 2.3 2.32 Operations Vestas Phase 2.33 ode 2.34 Other June 2005 74 Douglas-Westwood Ltd & ODE Ltd
  • 75. Scroby Sands – Supply Chain Analysis Draft Report Scroby Sands Project Supply Chain Study Detailed Component Cost Breakdown (Tier 3) Parent Item Nacelles Tier 3 Reference 2.22.3.4 Quantity (Per Cost (Per Est. Mhrs. (Per Item No Sub-Component Item Supplier No. of Units Total Cost £000s Est. Total Mhrs. UK Content (%) Remarks Unit) Unit) £000s Unit) 1 Generator A.N.Other 1 xx.x yy.y 30 30xx.x 30yy.y 10 2 Gearbox 3 Hydraulic System 4 etc. Notes: Sheet No: - of - June 2005 75 Douglas-Westwood Ltd & ODE Ltd
  • 76. Scroby Sands – Supply Chain Analysis Final Report June 2005 76 Douglas-Westwood Ltd & ODE Ltd
  • 77. Scroby Sands – Supply Chain Analysis Final Report Appendix 2: Catalogue of Energy Industry Classifications June 2005 77 Douglas-Westwood Ltd & ODE Ltd
  • 78. Scroby Sands – Supply Chain Analysis Final Report June 2005 78 Douglas-Westwood Ltd & ODE Ltd
  • 79. Scroby Sands – Supply Chain Analysis Final Report Introduction “Offshore Oil & Gas Regional Information Gap Analysis”, a study produced by Douglas-Westwood Ltd (DWL) for DTI in January 2004, showed there to be a considerable variation in the amount and quality of information available on the energy industry both in the regions and indeed the UK as a whole – issues that DTI are seeking to address. One specific problem that was identified was a lack of comparable information on companies active within the energy industry, the business sectors they specialise in and their geographic distribution. Therefore, it is difficult to determine with any accuracy the economic importance of the energy industry to regions and communities. Some level of mapping has been undertaken for the upstream oil & gas sector, however, this is primarily based around determining the number of companies located in political constituencies and does not indicate their nature and true geographic distribution. At present, the UK Standard Industry Classification of Economic Activities (UK SIC(92)), provides a broad coverage of supply chain activity, however, in seeking to capture the full range of company capabilities serving each and every industry it lacks the level of detail to fully reflect the specific competencies of the supply chain to the energy industry. In contrast, current energy industry directories maintain a level of detail which while useful when searching for a highly specialised product are impractical for other purposes. For example, one such directory subdivides “cables” into 58 different products and services, while “consultants” are divided by subject sub-divisions. In total, this directory has 7,000 company entries in 3,200 categories, with the majority of categories populated by just a single company (possibly caused by companies’ own definition of their activities). An example of how the information need may be met is the internet-based supply chain mapping system ‘Mapergy’, established by the East of England Energy Group (EEEGR) for the East of England energy industry. This is driven by an underlying database of some 2,500 companies and enables their actual distribution by geographic location (postcode) to be clearly displayed. In order to further develop this system, it was thought necessary to code the companies according to their activities, with for example ‘project management’ companies servicing the ‘Oil & Gas’ or ‘Wind’ industries being displayed as such. However, for this to happen there is a need to produce a set of keywords to classify activities of companies in the energy supply chain in a pragmatic fashion. This could begin in oil & gas and extend through to renewables and nuclear related activities. Aims & Objectives This study was commissioned by the EEEGR and completed by DWL in December 2004. The project required the creation of a “pragmatic” coding system to be applied to all companies identified, or seeking, to be working within the supply chain to the energy industry. The framework created will act as a means of facilitating the identification of specific capabilities of companies servicing one or more sectors and enable the effective segmentation of the industry. This is to be achieved through the creation of three independent, relational datasets, structured as a keyword listing based on a maximum of 150 categories, with each dataset to be supplemented by a glossary defining keywords where appropriate. The three independent relational datasets will be: June 2005 79 Douglas-Westwood Ltd & ODE Ltd
  • 80. Scroby Sands – Supply Chain Analysis Final Report 1. Industry Sectors – Oil & Gas, Wind, Solar, Nuclear, etc 2. Industry Roles – Operator, Service Provider, Support Organisation, etc 3. Industry Classification – Drilling & Wells, Installation & Commissioning, etc The coding system will be supplemented by suggestions of the key industry metrics that should be recorded within supporting databases to facilitate attempts to perform a consistent and repeatable analysis of the nature and scale of activity within any supply chain to the energy industry (full details of which are available from EEEGR upon request). Application Having established an appropriate framework of use the catalogue of categories will then be integrated into EEEGR’s ‘Mapergy’ system and made available to all POWER project partners as a means of providing a common terminology in completing their country specific supply chain studies. It is also envisaged that such a system will be complementary to work being developed to better identify skills sets against the capabilities of the industry. In creating such a system care has been taken to deliver upon the specific project brief provided by EEEGR. However, given the depth of knowledge and experience within the energy industry, as soon as any list is prepared for use, others will seek to redefine or amend. It is therefore acknowledged that any coding or classification system will never be completely accurate or practically usable. Whilst we would caution against wholesale additions, both DWL and EEEGR positively encourage good and critical feedback to improve the initial listings. Any such feedback would be tackled thus: 1. Acknowledge feedback 2. Review proposed addition against definitions 3. If definitions change add appropriate activity Implementation 116 categories have been created, comprising 11 Sectors, 10 Roles and 95 Classifications. A listing of categories follows, and a glossary of the terms used and example of the system in operation can be obtained from EEEGR upon request. Companies are required to select (or be placed within) the Sector they are servicing (i.e. Oil & Gas), the Role they perform (i.e. Engineering) and the Classification which best describes their activities (i.e. Fabrication & Construction). Following further testing the categories are currently being applied to all companies within the East of England identified, or seeking, to be working within the supply chain to the energy industry as part of DWL’s ongoing work within the POWER project. Once successfully applied to the East of England, and fully integrated with Mapergy, it is intended the system be made available for use in other regions, both within the UK and further a field with further potential to transfer the framework to other national and European Regional Development Agencies and Trade Associations envisaged. June 2005 80 Douglas-Westwood Ltd & ODE Ltd
  • 81. Scroby Sands – Supply Chain Analysis Final Report Category Listing Sector Role Classification Bio Fuels Consultant Academic Institution Biomass Design Accountancy, Financial, Insurance & Tax Geothermal Engineering Anchors & Moorings Hydro Installation Architectural / Building Materials Hydrogen / Fuel Cell Manufacture / Supply Bearings & Transmissions Nuclear Operator Bio Feedstock Offshore Wind Research & Development Bolting, Fixing & Fasteners Oil & Gas Service Buoys & Buoyancy Materials Onshore Wind Support Organisation Business Development Solar Training & Education Cables & Connectors Wave & Tidal Cases & Packaging Certification Chemicals, Oils & Paints Communication Systems Compressors Computing & Information Technology Control Systems, Topsides & Subsea Cooling, Heating, Ventilation & Air Conditioning Corrosion Protection Decommissioning & Abandonment Diving & Underwater Services Drilling & Wells Dynamic Positioning Systems Electrical Equipment, Materials & Services Electronics Energy Conservation Energy Conversion Processes Engines Environmental Assessment & Monitoring Exploration & Production Explosives Fabrication & Construction Feasibility / Front End Studies Foundations & Piles Freight, Logistics & Transportation Gas Turbines Gears & Gearboxes Generators Hazardous Area Equipment & Services Heaters, Heat Exchangers, Furnaces, Boilers etc. Hoses & Fittings Hydraulics & Pneumatics Hydroelectric Turbines Inspection & Testing Installation & Commissioning Instrumentation June 2005 81 Douglas-Westwood Ltd & ODE Ltd
  • 82. Scroby Sands – Supply Chain Analysis Final Report Insulation Integrated Services International Trade Land & Premises Legal Legislation & Regulations Local Authority Machine Shops Maintenance, Modification & Operation Market Research Marketing Material & Product Handling Media Navigation Aids Networking & Events Non-Metal Materials (Plastics, Composites, etc.) Patent, Trademark & Copyright Personnel Photovoltaic (PV) Systems & Supplies Pipes, Pipelines & Risers Ports & Supply Bases Process Control Project Management Propulsion Systems Publications & Technical Manuals Pumps & Accessories Research & Development Reservoir Engineering Ropes (Wire & Synthetic) Rotor Blades ROVs Safety, Security & Firefighting Scour Protection Seals & Gaskets Seismic Signs Steel & Metal Materials Subsea Production & Control Supply Chain Management Support Vessels Survey & Positioning Technology Services Trade Association Training Valves & Accessories Waste Management Welding Wind Turbines & Towers Workshop & Hand Tools June 2005 82 Douglas-Westwood Ltd & ODE Ltd
  • 83. Scroby Sands – Supply Chain Analysis Final Report June 2005 83 Douglas-Westwood Ltd & ODE Ltd