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Offshore wind needs to clean up its O&M act -Part 2

Project operators are not incentivised to adopt zero-emissions vessels and regulatory reform is sclerotic. But the economics of electrification are improving quickly.

  • Cost pressures and a lack of economic incentives hamper the adoption of zero-emissions operations and maintenance (O&M) solutions
  • Financing does not pose a major bottleneck but a lack of commitment from operators stymies investment
  • Some older wind farms could make a big emissions impact by implementing low-cost operational improvements
  • Fast-improving battery economics and rising commodity prices could trigger an inflection point in favour of fully electrified service vessels before 2030

Offshore wind has a golden opportunity to lead the decarbonisation of the wider British maritime sector by showcasing how to improve fleet efficiency and switch to lower and zero emissions fuels. The industry is likely to be both a consumer and producer of clean maritime fuels such as hydrogen, e-methanol and electricity for hybrid electric workboats, so there is an inherent logic in installing offshore infrastructure to decarbonise the operations and maintenance of turbines at sea.

As detailed in part one of this series, numerous voluntary initiatives are underway to clean up the offshore wind O&M fleet – some led by forward-thinking fleet operators and others by project developers. But all options come with costs and trade-offs, and there is no one-size-fits-all solution. Moreover, the lack of incentives for developers to pay for greener fuel options is the biggest single barrier to wider uptake – and projects are already under immense cost pressures.

“If you were to ask vessel operators to decarbonise fully tomorrow with no incentives then they would face a huge cost,” says David Cooper, regional partnership manager and clean maritime lead at the Offshore Renewable Energy Catapult. “But if that cost was absorbed into the CfD [Contract for Difference] strike price then we are talking about pennies,” he told E-FWD.

Transitioning the entirety of British maritime operations to net zero by 2050 would cost at least £75 billion, according to a landmark 2022 study by Marine Capital and Lloyds Register. Of this, offshore service vessels (including both offshore wind and oil and gas) would account for between one quarter and one third, Marine Capital CEO Tony Foster told E-FWD.

Highly competitive CfD auctions that prioritise cost above all else leave little incentive for operators to choose more expensive green options, Foster said. “Therefore, even if shipowners choose low/zero emission options for vessels, they are unlikely to be compensated for the associated extra costs. There are also issues relating to the availability of shore power in the case of electrification.”

It doesn’t matter if you have the most amazing technology that’s been funded through the CMDC, if you don’t at least have a letter of intent from the client then the bank will walk away.

Kerrie Forster, CEO of the Workboat Association

Commitment issues

Finding the money shouldn’t be a challenge because there’s a healthy appetite among the finance community to bankroll the cost of retrofitting or building new vessels. Kerrie Forster, CEO of the Workboat Association which represents 180 owners of vessels of 500 gross tonnage and below, says risk-sharing will be crucial to unlocking new sources of capital.

“[Fund managers and banks] are looking for green investments. The problem is that some lenders are not interested in lending on unproven technology,” he said. This could be resolved by specialist intermediary brokers taking on the debt repayment obligation to assuage risk-averse lenders, and charging a small premium to the vessel owner.

However, this rests on a commitment from the customer in the form of a five-year charter (or longer) at an agreed day rate. “It doesn’t matter if you have the most amazing technology that’s been funded through the CMDC (the government’s Clean Maritime Demonstrator Competition), if you don’t at least have a letter of intent from the client then the bank will walk away.”

Securing investment also requires commitment from the boatyard through to the boat owner, although this is “always a lot quicker” to arrange. But in the absence of governmental support or regulatory obligation to use green fuels, few operators are likely to commit to charter a higher cost zero-emissions vessel, Forster said.

Low-hanging fruit

Despite the funding impasse, there are ample opportunities to lower the emissions footprint of offshore wind O&M that don’t require significant up-front capital investments. One area ripe for improvement is in the logistical management of offshore operations, combined with offshore provision of simple solutions such as diesel scrubbing additives and turbine tethering lines.

Several vessel operators told E-FWD there are still too many wind farm operators that send workboats on unnecessarily lengthy trips between North Sea turbines that involve criss-crossing large wind sites, rather than scheduling drop-offs in a logical manner to reduce mileage. Others fail to replenish supplies of AdBlue additive in tanks at turbine bases, or do not provide tether lines that would allow workboats to switch off engines while loitering for long periods at sea between assignments.

Ian Baylis, founder of Seacat Services, told E-FWD there is only so much that vessel operators can do to clean up their operations without collaboration from their customers. It makes little difference if a vessel is powered by e-methanol, hydrogen or batteries when simple fixes could go a long way to delivering big emissions savings that are, in most cases, cost-neutral or even cost negative.

“The moment the ink dries on a charter party, everything we do is under the influence of our customer. If they tell us to take a vessel from Great Yarmouth to Grimsby, we do so. We can provide them with tangible options to realise their decarbonisation goals [but] it’s all about collaboration and working closely with the vessel owners,” he said, adding that the client always has the final say.

Ian Baylis, founder and director of Seacat Services.

Fixed costs, rigid thinking

Willingness to adapt diverges along age lines. Older wind farms built under the now-defunct Renewables Obligation, which are approaching the halfway mark of their design lives, are less inclined to shoulder additional costs. These projects might not see long-term investments paying off before their anticipated decommissioning date. Many have been refinanced by pension funds under a fixed business cost base that allows little room for extras, no matter how green they may be.

“For existing projects it’s all about saving pennies. They are always going to go for the lowest cost solution,” says Leo Hambro, commercial director of Tidal Transit, a specialist wind transport and transit services provider.

The government has helped de-risk the adoption of numerous promising solutions, such as offshore charging infrastructure for battery electric vessels, through its £77 million Zero Emissions Vessels and Infrastructure (ZEVI) competition. Vessel electrification involves costs of around £2 million for offshore charging and £500,000 for port-side charging capacity.

But even with ZEVI grant assistance, the wind farm operator must still stump up the remaining 20% cost of the technology and install it. “We’re not talking about a huge amount of money, but why should Prudential or another fiduciary pay more without any tangible gain for their investors?”

Legal hurdles

By contrast, it is “much easier” to introduce greener operations and maintenance solutions to future projects, Hambro said. The up-front capital cost of building new vessels and supporting infrastructure is “negligible” when amortised over the 15-year duration of the CfD, and over the long term it can even save money from reduced operational expenditure (OPEX).

“If you are using your own electricity from behind the meter, your OPEX is going to be much lower than if you were using diesel – provided that your subsidy scheme allows you to extract electricity from the turbine.”

Stillstrom is an offshore charging buoy concept developed by Maersk Supply Service, and is working with North Star to assess the feasibility of offshore electrification.

Hambro explained that, in some instances, the RO commits an operator to deliver a certain amount of electricity to the grid so would penalise a project for any shortfall arising from recharging vessels offshore. Extracting the power at the substation complicates matters because at that point the electricity belongs to the OFTO, which impacts that investment’s economics. 

“We’re talking about small volumes, but it is still a cost. There’s a legal aspect to this that nobody ever envisaged being an issue when these subsidy schemes were first designed. It should be possible to extract power without penalty in order to facilitate decarbonisation,” he said. The added benefit of going behind the meter is that it avoids transmission losses.

Rapidly improving battery economics, combined with rising commodity prices, are already moving the needle quickly in favour of electrification.

Regulatory sclerosis

There are two ways to make an industry move in lockstep towards more sustainable operations. One is through regulation, and numerous proposals have been made to introduce carrots and sticks along the offshore wind regulatory journey. The other is through a shift in the underlying economics of green versus dirty fuels.

On the regulatory side, the government is considering introducing non-price factors into the CfD allocation system to reward wind farms that support improvements in the sustainability of its supply chain, including the offshore service fleet. But, as discussed elsewhere in E-FWD, incentivising supply chain investments at the point of CfD award is too late in the project development process to be effective.

It would make more sense to mandate the use of zero-emissions vessels at the much earlier seabed lease award stage. The Crown Estate is believed to be exploring ways to deliver greater environmental and community benefits from its seabed leasing regime, but a source told E-FWD that zero-emissions vessels are “not on the priority list” for the first stage of this initiative.

In conclusion, regulatory reform is a tortuously slow process that often lacks transparency and can skew markets in unhelpful ways. Economics, on the other hand, is moving quickly in the right direction – and an anticipated ramp-up in carbon pricing in the late 2020s could help tip the economic scales, prompting laggards to take action.

Built to serve Dogger Bank wind farm, North Star’s Grampian Derwent is a larger ship with increased accommodation capacity and helideck. Supplied by North Star

Economics trumps regulation?

So far, carbon pricing is woefully inadequate. The UK carbon price has fallen dramatically in 2023 and is now trading at a steep discount to the EU Emissions Trading Scheme. Hambro of Tidal Transit said the current CO2 price would add just 16 pence per litre to the cost of diesel fuel, which falls well short of what’s needed to trigger change.

But rapidly improving battery economics, combined with rising commodity prices, are already moving the needle quickly in favour of electrification. Tidal Transit has seen the capacity of a 20-tonne battery bank and cooling system rise from 2,040 kilowatts a year ago to 3,201 kW today, and anticipates a further 50% improvement in the next five years or so. And as battery technology improves, upgrading e-vessels makes sense because the older power system can have a second life as a profitable shore-side energy storage solution once swapped out.

James Bradford, chief technology officer at UK fleet operator North Star, agrees. “Battery technology is evolving at such a pace with regards to energy density, wherein lithium cobalt that serves our needs now will be overtaken by solid state technologies that provide >10x [more] energy density than we currently have available to us,” he told E-FWD.

The combination of falling battery costs and rising diesel prices is likely to reach an inflection point in the coming years. Vessel owners tell E-FWD that wind farm operators used to say ‘burn as much diesel as you need to get the job done’, but that attitude has already changed since the post-Covid, post-Ukraine energy crisis caused fuel prices to soar.

There is great uncertainty around future oil and diesel prices, but in a world roiled by geopolitical instability the risk is asymmetrically skewed to the upside. With technology improvements moving at a fast clip and industry attitudes shifting, practically all newbuild wind O&M vessels already incorporate some degree of hybridisation and future-proofing.

Electrification is already taking hold as the go-to option for CTVs servicing near-shore wind farms. But as the industry moves further offshore, the trade-offs of battery technology become more acute and the case for e-fuels becomes more compelling. The question for e-methanol, hydrogen and hydrogenated vegetable oil (HVO) is, how can they bridge the cost gap? In the absence of government support, what can the wind  industry do to make strides towards a cleaner operational footprint?

These questions are explored in more detail in the third and final instalment in this series, available exclusively to E-FWD members.

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