United Kingdom Offshore Wind Market
The UK power market is going through a transition towards a cleaner energy mix. The UK will phase out coal-fired power plant by 2025 and offshore wind power is playing an increasingly important role in delivering the low carbon energy mix. The offshore wind sector has matured rapidly over the past few years in the waters around the UK and it is now capable of providing a reliable supply with proven technology. Indeed, the UK has retained its top spot in the industry in terms of projects in the pipeline or already in use, boasting a total capacity of 38.9GW. Offshore wind currently contributes about 10% to the UK electricity mix.
The UK enjoys a long coastline with good wind speed and relatively shallow seabed, making it an ideal place to develop offshore wind farms. As a result, the largest wind farms and turbines in the world are being planned and installed alongside the UK coast.
At the same time, the openness and transparency of the UK power market have made it one of the most attractive destinations for U.S. companies.
When looking at getting involved in a UK offshore wind projects, U.S. companies need to understand the project lifecycle and the key statutory stakeholders involved:
Seabed Rights: The Crown Estate owns the seabed of which offshore wind farms are developed and it is responsible to lease out the seabed for offshore wind development through a competitive process https://www.thecrownestate.co.uk/en-gb/our-places/on-the-seabed/ https://www.thecrownestate.co.uk/en-gb/our-places/asset-map/#tab-2
Planning & Consent: After obtaining the lease to develop a wind farm, the developer will need to apply for Development Consent Order (DCO) from the Planning Inspectorate or permissions from local authorities, as well as obtain a generation license. The key stakeholders involved are The Department for Business, Energy & Industrial Strategy (BEIS) https://www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy and The Office of Gas and Electricity Markets (OFGEM - the regulator) https://www.ofgem.gov.uk/.
Power Transmission: The developer will build transmission assets from the offshore wind farm to the onshore grid will be built and then transfers the asset to an offshore transmission owner (OFTO). OFTOs are appointed through a competitive process which is run by Ofgem. The transmission agreement will need to be agreed with National Grid who is the system operator (SO) https://www.nationalgrid.com/
Economic support: Once the planning permission and generation consents are in place, developers can compete for Contract for Difference (CfD) which is an economic support that BEIS provides for eligible renewable generation https://www.gov.uk/government/publications/contracts-for-difference/contract-for-difference. To further support the sector, in 2020 the UK Government published the Offshore Wind Sector Deal https://www.gov.uk/government/publications/offshore-wind-sector-deal/offshore-wind-sector-deal
The main players in the UK offshore wind market include:
Developers: Ørsted (a Danish company),which currently has the largest UK offshore wind portfolio by owner share (~24%); other companies who own a significant proportion of the current offshore capacity deployed offshore include Vattenfall (~13%), SSE (~12%), Iberdrola (~11%) and Innogy (8%).
Prime contractors / Tier 1: Contracts for manufacture and construction are often signed two years before construction and in some cases even earlier via strategic framework agreements or strategic company alliances. The UK offshore wind supply chain has a strong cohort of major component suppliers which contract directly with project developers. This top level, Tier 1 contractors typically supply Wind Turbine Generators (WTGs), Foundations, Substations (onshore & offshore) Export and Array Cables. Despite the large numbers of offshore wind farms in the UK, the supply of Wind Turbines and foundations has been shared between a limited number of players. In particular, the WTG market has been dominated to date by Siemens Gamesa and MHI Vestas, with next generation turbines of greater size and capacity being brought to the market by competing parties such as GE Renewable Energy. Offshore Foundations, EEW SPFC and Bladt are the main players in the foundation fabrication market not just in the UK but the European market too. The export and array cable market in the UK and Europe has more variety than that of wind turbines and foundations, however JDR Cables has proven a dominant player in the array cable supply market.
Tier 2: Many UK civil engineering contractors also deliver significant scopes for offshore wind farms. Companies such as J M Murphy’s, Balfour Beatty and Volker Infra undertake significant onshore construction projects for UK windfarms, including the onshore cable routes to existing substations.
Tier 3: These are smaller, specialist suppliers which are contracted by Tier 1 or Tier 2 contractors.
Field assembly, maintenance and operations suppliers: These cover the initial service and warranty phase which has historically typically been for five years, where OEMs maintain the turbines and the developers (in-house or through a contractor) maintain the balance of plant and long term service agreements (LTSAs) with OEMs (or potentially independent service providers), in-house by developers, or multi-contract or a combination thereof.
Useful sources of data on the supply chain for the U.S. industry are RenewableUK’s Wind Energy Database https://www.renewableuk.com/page/UKWEDhome and Supply Chain Map https://www.renewableuk.com/page/SupplyChainMap, the Offshore Wind Industry Council https://www.owic.org.uk/ and Catapult Renewable Offshore Energy https://guidetoanoffshorewindfarm.com/supply-chain-map
For more information contact Claudia.Colombo@trade.gov.