Wind Watch

2013 was a critical year for the international wind energy market. It was also a significant period for the newly merged classification and advisory company, DNV GL. In December, the new business unveiled its new identity and set out its vision for helping to enable a safe and sustainable future – of which UK offshore wind plays a key part.

Following the company’s official new brand launch, Managing Editor Adam Barber spoke to Joe Phillips, Head of Strategy & Policy Services, Renewables Advisory, DNV GL about the state of the market and the firm’s vision for the future.

Adam: In recent years, the pace of development within UK offshore wind has been rapid to say the least. To what extent has this pace been set by the regulatory framework and government policy?

Joe: First and foremost, as the industry matures, it’s worth setting the record straight – and in doing so, facing some hard facts. While there’s no doubt that UK offshore wind has indeed come a long way in a short space of time, not all of this progress has been undertaken at such a blistering turn of speed.

Indeed, looking back over the last 10 years of deployment, it’s perhaps more accurate to suggest that while there have been some considerable growth spurts, when viewed as a whole, progress has been stuttering rather than stable. It is fair to say that almost every growth projection has been wrong – with offshore wind never failing to disappoint in terms of actual delivery.

But to a large extent this is all a matter of great expectations. With the benefit of hindsight, we can see that although the positive political signals in the UK got this technology through the “valley of death”, it also over-inflated expectations in terms of market size and timing.

At the same time, we must recognize what has been achieved: with over 3GW operational in the UK and over 5GW globally, offshore wind is coming of age.

Sure, the pace of development could have been smoother, more predictable and perhaps even a little faster. However, there’s no denying the importance of that early government intervention and catalytic policy and regulatory framework, even if we are now paying for some of the early hyperbole in the form of reduced market confidence.

Adam: To what extent is government industrial and energy policy critical to setting future market expectations, breeding investor confidence, and establishing a credible framework for the future?

Joe: In short, it’s critical. And it’s a very difficult balance to strike.

Industrial policy provides confidence for investment, while energy policy creates a clear and certain regulatory framework to meet energy policy objectives around security of supply, affordability and climate change.

And while that sounds relatively simple, what we have experienced – and, some would argue, continue to experience – in the UK is a fundamental disconnect between the two.

That means that on the one hand, investor expectations within offshore wind have so far been set and established by the market potential and its sheer size. Whereas on the other hand, the limited funding available under the Levy Control Framework (LCF) for Contracts for Difference (CfD’s) has meant that an installed base of 8GW by 2020 is looking increasingly like the best we can hope for. It remains to be seen whether a market of this size will be sufficient to attract significant supply chain investment.

Adam: We heard at EWEA Offshore in Frankfurt about the need to set clear European targets for 2030. However, for many, 2020 still feels some way off. Within the UK, what does an 8GW 2020 target really mean for the market? And is it achievable?

Joe: 2020 might seem like a long way off, but the reality within the offshore wind energy development and construction industry is that it really isn’t, especially if you are a supply chain participant looking at new strategic investments.

So it is absolutely imperative that the industry secures the 2030 commitments.

Truth be told, we really needed to set them a couple of years ago, in order to give future prospective investors the confidence and certainty that they really need.

As I said previously, although 8GW by 2020 is now comfortably achievable and the supply chain can deliver against these commitments without further additional investment, it’s worth remembering that this 8GW would consume approximately 65% of the available funds set aside through the CfD programme.

That’s a substantial chunk of funding and it raises important questions for the UK government’s commitments to other low-carbon technologies.

Adam: To what extent will these targets help the UK market deliver against and meet its public ambition to achieve £100/MWh? And perhaps more importantly, is this streamlining thinking and picking the cheapest projects?

Joe: When it comes to cost reduction in offshore wind, there really are two versions of the world.

Industrial policy strives for cost reduction through scale, learning and innovation. Each of these three key elements requires investor confidence in a large, stable and established market.

Then there is the post Electricity Market Reform (EMR) world. Here market forces are used to deliver the highest amount of clean energy, against a fixed budget. Given the limited size of the pot, this means that the most economic projects are likely to secure funding up to a cumulative deployment level of 8GW.

This cherry-picking, or “streamlining” might look like cost reduction, but by simply dodging the more technically demanding projects, there may be insufficient volume to achieve the real underlying cost reduction borne of scale, learning and innovation effects. For example, it is worth asking the question whether an 8GW market by 2020 will be sufficient to bring through the next generation of wind turbine technology in a 6-8MW range.

Adam: Okay, that makes a lot of sense. So in light of this – and given the recent developments at the Atlantic Array – what does this really mean for those considering investing in the UK? How does this impact the wider financial picture?

Joe: Undoubtedly it makes it tough – particularly for supply chain investors.

However, for investors in assets, irrespective of whether they are focused on generation or transmission, there remains a range of opportunities that offer stable returns. Following all of the travails of the last decade, we are now talking about a proven asset class, which is already attracting a wide range of funding sources from pension funds to non-recourse project finance.

Adam: That’s certainly good to hear – and the push towards a more proven and established asset class certainly breeds greater market confidence, Joe. So what of DNV GL – what does this mean for the newly merged business? And what changes within UK offshore wind in particular do you expect this to have on your business?

Joe: As a result of the merger we’re now in a position of real strength to make a significant positive impact on the market.

Our energy systems were built in a different age to meet different challenges. Over the coming decades they need to be radically transformed to meet future needs. We have over 1,000 of the world’s leading renewable energy experts and a similar number focused exclusively on grid and transmission technology. So we are very well placed to make a positive impact on the ongoing energy transition.

At DNV GL, our future success in the market can only ever be measured by the extent to which we can help our customers and the wider industry to transform our existing energy infrastructure to allow renewables to move to the next level. For us, that means enabling the renewable energy technology of today to become the key energy infrastructure of tomorrow – something that looks increasingly likely as we march towards grid parity. To achieve this, both renewables technology and grid technology will need to change and be developed together, in an integrated fashion. We look forward to being at the forefront of this transformation.

In the final week before Christmas last year, we launched our new brand and our vision for the future. For me, 2014 is not just the time for beginning to bring this all to life but is very much about continuing to deliver against it.

Joseph Phillips is a Chartered Engineer at DNV GL and Head of Strategy & Policy Services, as well as leading on communications within renewables for the company. His international team provides targeted support to governments and companies.

He has worked in renewable energy (primarily offshore wind), for over 10 years in engineering, project management and strategic roles. He has been the lead author of a number of industry reports including “UK Offshore Wind: Charting the Right Course” and “Wind In Our Sails – the coming of Europe’s offshore wind energy industry”. To contact Joe direct, please email joseph.phillips@dnvgl.com.