Better Supply Chain Engagement Could Save EUR 1.5 Billion Annually (UK)

The cost of delivering offshore wind schemes could be reduced by up to 15% by the end of this decade through more effective supply chain engagement, according to research by global built asset consultancy, EC Harris.

With the European Wind Energy Association (EWEA) estimating that by 2020, €10.4bn could be invested in Europe’s offshore wind industry on an annual basis, EC Harris believes that through the supply chain alone, there is scope to save the industry up to €1.5bn each year provided certain market conditions are in capitalise on the cost reduction opportunities identified.

The findings from the report ‘Making Offshore Wind Commercially Viable: The Supply Chain Opportunity’, came from a series of focus interviews and workshops that EC Harris held with organizations across all tiers of the European offshore wind supply chain. The outputs from these sessions formed part of a major study commissioned by the UK Crown Estate earlier this year on how the cost of offshore wind schemes could be reduced by 30% by 2020.

However, whilst the EC Harris report showed significant savings could be made through better supply chain engagement, it also cautions that whilst the cost of delivering these schemes remains at the current level, much of the proposed investment in new development is unlikely to materialise.

With the next generation of offshore wind farms likely to be located further away from shore and in deeper water, the study showed that the growth of the market will hinge on the industry’s ability to significantly reduce costs and deliver power at a price that’s affordable for developers, investors and customers alike.

The EC Harris study outlined six key areas where the supply chain believed improvements could be made to help lower the cost of offshore wind schemes. The primary levers identified were as follows:

• Increased levels of competition
• Better vertical collaboration
• Drive greater economies of scales
• Further horizontal co-operation
• More incentive-based contracts
• Deeper appreciation of uncontrollable risks

Isabel Boira-Segarra, Head of Renewables at EC Harris said: “If the right market environment is in place, new providers will enter the sector as demand increases over the coming years. Greater competition should see costs drop as it will open up opportunities to rationalise suppliers, negotiate volume discounts or introduce performance-related contracts. Deeper levels of collaboration will also have a vital role to play; whether it’s through formal mechanisms like alliancing or simply through better information sharing, a more joined-up supply chain will accelerate learning and act as a catalyst for a concerted cost reduction programme.”

However, whilst EC Harris was able to identify several areas where cost-savings could be delivered, it also recognized that a series of conditions needed to be in place in order to allow the supply chain to capitalise on these opportunities. The six steps that the industry believes will be key in helping to facilitate progress include:

• Increase market certainty and volume visibility
• Provide sufficient capacity in prototype testing sites
• Educate and engage finance and insurance communities
• De-risk the pre-consent stage
• Put industry-wide common standards in place
• Ensure appropriate levels of human capital are available

“To enable the supply chain to secure the necessary capital to build new manufacturing plants, port facilities and vessels, governments and the relevant public bodies across Europe, must succeed in creating and sustaining a viable policy environment that offers greater certainty on financial support mechanisms, expected volume of work and proposed development timeframes. Providing this long-term visibility on how the industry is likely to evolve, will prove crucial in attracting new players to the market and in addressing some of the concerns that is currently deterring the finance and insurance communities from backing offshore wind development schemes added” added Boira-Segarra. 

[mappress]

Press release, October 30, 2012; Image: Energi Coast