Facing up to offshore wind’s planning problem

Offshore wind has a planning problem. Squeezing margins on projects hits early stage designs, but also rolls into the wider challenge for the industry, particularly around securing the right vessels for the job.

This increase in demand has created a gap, Youwind Renewables CEO and co-founder Ana Rivera said. “There are consequences to that growth. There are many new players and there is a need to tackle the real deployment rate.”

Fathom Group’s Richard McGowan said there is not always enough communication in the early stages of an offshore wind project’s plan.

“There can be a disconnect between the operational and design elements,” McGowan said. These can lead to cost challenges later on, when assumptions meet reality, for instance around transport and installation (T&I).

Early stage concepts may have little budget to provide all the answers required to get ahead of these problems. Despite this, developers must seek external validation to move ahead in project funding.

“We can try and give an answer but companies often just want an opinion, with little or no engineering. What drives these projects are financial teams, who don’t see the technical problems down the road,” McGowan said.

Wind vessels

One such area where planning becomes essential is for vessels. Competition for vessels in the offshore wind space has continued increasing in recent years.

“There’s a big time delay for vessels. You can’t just order a heavy lift vessel from a yard in six months’ time. Those companies building them have to take a big gamble,” McGowan said.

Some European yards took the chance and are “now reaping the rewards”, he continued.

“There’s a constraint right now in vessels capable of laying foundations, more than for turbines and cables,” Youwind’s Rivera said. “It’s estimated there is congestion on vessel demand for the next five years.” She was more sanguine about constraints around cable-laying vessels.

There are areas in which developers can tackle shortfalls. Most construction work takes place in the summer, given the more clement conditions.

“Maybe it’s worth taking a bit more weather risk, in a part of the year when there’s availability of vessels,” she said. “This is a planning constraint that can be taken into account from early stages.”

Fearnley Securities described 2023 as a “perfect storm” for the subsea construction vessel market, with demand up from oil and gas in addition to offshore wind. Demand, it said, is higher than in the last peak of 2013.

“The supply of subsea construction vessels is remarkably tight” entering 2024, Fearnley said. The Norwegian group said dayrates would rise “significantly” this year from 2024.

Growth at all costs

Project developers have historically pushed for bigger and bigger turbines. Chinese companies have responded by scaling up, with Mingyang Smart Energy having recently set out a design for a 22 MW turbine, with a 310-metre rotor.

McGowan noted that bigger turbines provided developers with better returns. “But it’s always a new design. That has a knock-on impact through everything else.”

Offshore wind planning lacks standards and consistency between projects, he continued. “No project is ever the same. When working offshore the different water depths, soil conditions, environmental conditions all have an impact on decisions.”

Scaling up turbines has proved challenging to contractors. “We need to stop the race,” said Rivera. “We are optimising the models that are working and optimising the supply chain – and developers need to support that. The larger turbines can harvest more energy, but there are so many other factors to drive success.”

In addition to vessel availability, planners should spend time considering suitability. “A lot of these vessels designed for heavy lift, were designed for occasional heavy lift in oil and gas. They were not designed for week in, week out work on the scale and volume of offshore wind,” McGowan noted.

Working vessels will be rated for a certain number of use cycles. Moving from a lower rate of use for oil and gas to a higher use rate, on wind farms, will necessarily reduce a vessel’s lifespan.

The number of jackets or topsides needed in an oil and gas project is “minuscule” in comparison to the volume of a wind farm, he continued.

Local instability

Youwind provides interested parties with the ability to screen offshore wind opportunities around the world.

One of the factors Youwind looks for when assessing a market, Rivera noted, is the ability of local manufacturing. “There is a common awareness that manufacturing has to be done in house. With solar, we lost it in Europe, it was outsourced. The transition to wind power has to be done in house with European know how.”

The UK lacks heavy lift capacity, McGowan said.

Prospects for newbuilds are scant. “Companies will only build more vessels if there are long-term contracts,” Innes Auchterlonie, managing director of IMRANDD, said. “The lead time is significant as design time must also be incorporated – and they’re not cheap.”

Auchterlonie said the lack of stability in offshore wind had scared companies off. “Offshore wind should have moved away from boom and bust, with government targets sustaining a nice linear move.”

Fleet owners must have confidence in future demand to upgrade, whether through buying new vessels or refurbishing.

“There’s a real problem for vessel owners trying to secure bank finance, when the bank says ‘how’s the market?’ and there were no people bidding in AR5,” Auchterlonie said.

Denmark-headquartered Cadeler has demonstrated the cost of expansion. The company has ordered six newbuilds from China’s COSCO and South Korea’s Hanwha Ocean for a total of 1.8 billion euros (£1.54bn).

Cadeler expects its newbuilds will payback in less than three years. It has acknowledged that ordering a vessel now would carry a higher price tag.

Room for planning

Offshore wind is facing up to its growing pains. The industry has made extraordinary gains to reach where it has, but now contractors are more willing to fight for their margin and developers are facing up to the competition.

The oil and gas industry has gone through a number of such cycles and contractors – by and large – are able to ride the ups and downs. Typically, this provides scope for some degree of redesign and renegotiations.

McGowan compared offshore wind to civil construction, where tenders go to the lowest bidder and there is no room for overruns.

“The best solution is somewhere in between. It’s a market-driven problem but there aren’t the margins to pay for major issues. Developers have been unable to take on the liability risk, which can be virtually crippling for a contractor.”

Hesitance on the part of developers is driven by their own negotiations with insurers, who shy away from taking on what they see as unacceptable risk. This has the impact of pushing the risk into the supply chain.

Oil and gas projects have a deeper history on which to draw. Offshore wind has not yet reached the same level of maturity in planning, but there is plenty of scope for optimism. There are new signs of suppliers and developers finding new ways to work together, not least in longer-term collaboration via framework agreements.