Wind Power
Kolumnentitel
Wind Trade:
The London
Array
and Its Market Conditions
From planning and commissioning to the political environment,
London Array as the world’s largest offshore wind power
plant illustrates some important points about the dynamics
in the offshore wind investment market.
Text: Dennis White
Illustration: Christoph Ohanian
T
wenty kilometers off the coast of
England’s Kent and Essex counties, where the Thames flows into the North Sea, the world’s largest
offshore wind power plant has been
developed. The power output of the
175 turbines of Phase 1 of the London
Array project is 630 megawatts on
average and should produce enough
energy to power half a million homes
in the UK, while saving about
925,000 tonnes of CO2 per year, which
equals the emissions of 300,000 passenger cars. Building London Array
has been an impressive achievement
in itself (see p. 78). But an equally interesting question is what London
Array says about the current state of
76 Living Energy · No. 9 | December 2013
investment in offshore wind power
across Europe and about what we
might be able to expect in the future.
Offshore wind benefits from economies of scale. Larger sites with more
wind turbines have the same development, consenting, and site setup
costs as smaller projects. Large projects make best use of specialist
vessels and turbine installation
speeds up as crews learn. The Crown
Estate, the landlord of the sea in Great
Britain, believes London Array to be
the most efficiently constructed wind
farm to date.
But size presents a financial challenge. Projects cost billions of euros,
and raising the money is beyond
u
Living Energy · No. 9 | December 2013
77
Wind Power
How the London Array Was Built
It took 12 years from a series of environmental studies in the outer Thames estuary until power began to
flow from London Array in October 2012. But, though
the planning and authorization stages are of course
necessary, in opening the offshore plant this year,
British Prime Minister David Cameron rightly paid
homage to those who had in just two years carried
out its construction: “This project has been built by
some of the bravest seamen, some of the most
talented engineers, some of the hardest workers.”
Chris Randle is the Siemens senior project manager
who helped manage this feat, although like Cameron, he is quick to credit the team that he led from
Siemens Wind Power – “a vast team of experts from
16 countries; over 400 people, including health and
safety, quality, finance, engineering, legal, planning,
logistics, technicians, and vessel specialists who
worked towards the single goal of making this project a success, an incredible team effort by all,” and also the client team, representing London Array’s
three owners, and colleagues from Siemens Energy
Transmission and Siemens Renewables Service who
all worked to make this happen.
of components in line with the program and critical
path, such as the installation vessel load-out dates.
The following stage was transport and construction.
The largest items – turbine towers, blades, nacelles –
embarked from Esbjerg port in Denmark. Effective planning and coordination made this process relatively
easy to manage, while installation can be a more
challenging process due to the nature of the works
and the conditions offshore. For London Array, two
specialized jack-up installation vessels were required
– each designed for different water depths – which
lower their jack-up legs into the seabed, then raise
the hull above the waves for a solid working
platform. They can only operate up to a certain level
of sea state – and installation of each turbine can
take between 6 and 22 hours of continuous work,
often in harsh conditions. As Michael Hannibal, CEO
of Offshore EMEA at Siemens Wind Power in Denmark,
puts it, “the wind will later be your best friend, but
first it is your worst enemy.” While the Array’s components were ready to ship from Esbjerg in
November, rough weather meant they couldn’t actually
leave port until the following January.
Looking back on this, his first offshore wind farm,
Randle lays out the key stages of construction. The
first involved clarification and understanding, as
client and contractor got to know one another and
the work ahead. Randle’s advice is to “actively engage early and create an open, honest, and collaborative culture,” and they began doing this at a series
of workshops.
With this basis, the Siemens and client teams proceeded to detailed planning. This is extensive, given that
175 turbines had to be placed into an area equivalent
to 7,200 football pitches, with water depths up to 25
meters, as well as areas that dry out at low tide – all
subject to unpredictable seas. Three substations
were also required – including two at sea, each
weighing around 1,250 tonnes – in order to deliver
power to the grid.
After installation on the foundations supplied and
installed by others, the turbines are individually
commissioned. The crew for this stage is located on
a hotel ship offshore and transferred to the turbines
via small transfer vessels – for London Array, it took
only six months in total to commission all 175 turbines – an amazing achievement when considering
most of the commissioning work took place in the
winter season. At the same time, the grid connections are being established and the control system
installed. The maritime substations bundle the
power that the turbines generate and transmit it via
the array cables to the offshore substations and
then via four high-voltage subsea export cables, almost 50 kilometers to the mainland substation at
Cleve Hill in Kent.
Randle admits that the final stage of “energization”
is “hugely satisfying.” It was celebrated with the
client, subcontractors, and suppliers at a barbecue
at the Siemens onshore construction management
facility. The cornerstone of success has been the
positive attitude, enthusiasm, and collaboration between many human interfaces. Randle concedes
that there were “daily challenges and several influences that effected the project deliverables during
construction,” but counsels: “Projects, like any relationship, need open, honest communication and for
you to put yourself in the perspective of the other.”
Next, the Array’s extensive components were manufactured and preassembled. Randle explains that
“delivering so many components, especially during
difficult economic times, placed additional strain on
subsuppliers. It was vital Siemens kept a close dialog with all of the parties involved in component
production” by effectively monitoring and working
with the large supplier base. If an issue arose,
Siemens was able to step in with resources, equipment, tools, and management to secure the delivery
78 Living Energy · No. 9 | December 2013
the capacity of a single developer or
even utility. London Array brings together three investors: DONG Energy
(50 percent stake), E.ON (30 percent
stake), and Masdar (20 percent
stake). Typically, projects in Britain
are developed on the balance sheet
by a consortium of equity investors,
and then construction finance (debt)
is provided by a group of banks.
Usually, each bank will lend at most
€150 million, and they will expect
the equity investors to raise around
40 percent of the total cost. Often,
state-backed banks like the European Investment Bank or export credit
agencies are also involved. This
makes financing a large offshore
wind farm a complex exercise in
financial engineering. Each of the
lenders will want to analyze every
possible risk and secure agreements
that show exactly who is responsible
and what insurance is in place.
High Winds Bring Many
Challenges
Offshore wind projects naturally
present many physical challenges.
Since they are positioned in windy
places, the seas can be rough. The
scale and size of offshore wind farms
and the dynamic nature of the technology involved puts them amongst
the most challenging energy projects
in the world. The entire construction
process involves many suppliers,
who have challenging milestones to
reach. Detailed planning is vital.
Michael Liebreich of Bloomberg New
Energy Finance, a keen observer of
the market, comments on how real
an issue this can be in financial
terms in the North Sea: “With one
stormy summer, you can lose a year.”
That can equate to a considerable
sum, given that the total construction cost of London Array was around
£2 billion. The same weather variability creates further risk for power
production. Financiers have to factor
these risks into their models. Fortunately, Siemens has more experience
of successfully managing such risks
than any other supplier. The choice
of key suppliers and even the experience of key staff can make a difference in the willingness of banks to
lend to a project. This is a significant
advantage for all parts of Siemens
involved in offshore wind.
Different countries have different
market structures for electricity. In
Germany, the feed-in tariff paid to
renewable generators can bring the
risk of “negative” prices for traders
and grid operators. “Market risk” on
top of construction risk would drive
up the cost of wind projects. In Great
Britain, the coalition government has
spent three years developing a new
reaching up to US$2.8 billion annually. Alternately, it may lead to the
involvement of different (risk- and
reward-hungry) investors in the construction phase compared to (more
risk-averse) investors in the relatively safer operational phase.
Location, Location, Location
The next feature to note is London
Array’s location. With 4.6 gigawatts
of offshore capacity, operating or
in construction, the UK has captured
“A pipeline of projects since
2000 has brought volume to
the industry, allowing
offshore to industrialize.”
Michael Hannibal,
CEO of Offshore EMEA at Siemens Wind Power
regime to support low-carbon generation that will be introduced from
2014. The new Contract for Difference
(CfD) sets a known strike price for
future electricity from the wind
farm. Removing market risk allows
lower-cost sources of finance like
pension funds to lend to offshore
wind projects. This will be vital for
the UK, given the scale of its ambitions for offshore wind.
A large utility may self-insure against
these possibilities, diversifying risk
by taking shares in a range of projects in different locations and jurisdictions. But the range of investors is
widening, and now includes funds
with low-carbon mandates as well as
pension funds that require stable
dividend yields. This is stimulating
demand for insurance. According to
Swiss Re, by the end of this decade, a
50 percent rise in renewable investment will produce more than a doubling of insurance in the world’s six
leading renewable energy markets,
almost 60 percent of the world’s total
offshore wind investment. Almost
three-quarters of the capacity installed in the EU in 2012 was in the
UK. Michael Hannibal, CEO of Offshore EMEA at Siemens Wind Power
in Denmark, explains: “The UK really
made a market, with a pipeline of
projects since 2000 that has brought
volume to the industry, allowing offshore to industrialize.”
Several factors drive this. The first is
the British government’s target of
sourcing 33 percent of its electricity
from renewable power by 2020 (compared to 11 percent at present), which
will both help reduce climate change
and increase UK energy security, given
that the fuel is neither imported
nor correlated with commodity prices. The government hopes that up to
18 gigawatts of offshore wind will be
onstream by 2020. None of the main
parties in the UK are seeking specific
renewables targets beyond 2020,
but all are committed by the 2008 Cli- u
Living Energy · No. 9 | December 2013
79
Wind Power
80 Living Energy · No. 9 | December 2013
Siemens’ scope of supply
Siemens provided the turbine technology,
grid connections, and
onshore and offshore substations as well as ongoing operations and
maintenance services. Siemens Wind Power supplied, installed, and
commissioned the 175
turbines for Phase 1:
175 x SWT-3.6-120 wind turbines
58.5-meter blades of fiberglass-reinforced epoxy cast in a single piece
Each turbine self-starts when the wind reaches 3–5
per hour) and can withstand a three-second gust of
m/s (16 kilometers
70m/s.
If the wind exceeds 25m/s, the High Wind Ride Through feature ensures
the turbines will continue operating, but reduces the produced power.
The wind turbines are explicitly designed for offshore use, including increased anticorrosion elements.
Nacelle weight: 145 tonnes
Tower height: 90 meters
Rotor diameter: 120 meters
The total height to blade tip is
The cost of offshore wind energy has dropped by 40 percent every ten years.
147 meters, higher than the
London Eye, which has a diameter of 135
meters.
Connecting to the grid
The two offshore substations’ electrical systems and onshore substation
work were designed and built by Siemens Energy Transmission.
Operations and maintenance
A warranty and five-year turbine servicing contract are provided. Siemens’
Renewables Service team, based at the recently opened London Array
operations and maintenance base, will provide O&M services for the next
five years.
Setting Cost-Reduction Goals
But as with any new technology, there
is uncertainty regarding the future.
Despite the UK’s good record to date,
policy risk remains. All three main
UK political parties support offshore
wind in different degrees. The Energy
Bill, which paved the way for the CfD,
received the strongest vote of any bill
in this parliament; only 8 out of 650
members of parliament voted against
it. The prospect of shale gas has
been widely discussed, but politicians recognize it will not significantly
change the price of gas or how much
can be burnt within the carbon bud-
Photo: Siemens
mate Change Act to an 80 percent
reduction in CO2 by 2050. The Act requires governments to set Carbon
Budgets that will achieve the 2050
target. This means that the electricity
sector in Great Britain must fully
decarbonize by the mid-2030s.
Next, the country’s eastern coastline
offers good wind conditions and shallow water depths, unlike the Atlantic
drop-off to the West. Deputy Prime
Minister Nick Clegg stated in July of
this year: “As an island nation, and
with our weather, you could say it was
technology designed for us.”
Then, as Michael Liebreich points
out, the UK grid is well managed,
helping it deal with the volatility of
wind generation. Furthermore,
Liebreich claims that whereas Spain
and the Czech Republic have seen
governments backtracking on previous promises on renewable tariffs,
contracts are more sacrosanct in
northern Europe. Great Britain has
been more consistent in encouraging
the development of the wind industry,
but significant details of the CfD still
remain to be finalized to encourage
investment.
Siemens has a significant footprint
in offshore wind in Great Britain and
has been involved in 13 offshore
developments to date across three
businesses representing technology,
grid, and service. Siemens has also
invested £9 million in an integrated
service technician training center
in the northeast of England, incorporating a dedicated wind power training school. Almost 900 people are
employed in Siemens’ Renewables
Service business, whose technicians
service over half the UK’s wind generating capacity. Siemens’ Energy
Transmission business has built a
new Renewable Energy Engineering
Centre in Manchester. Subject to
the continued development of the market and the necessary customer orders, Siemens plans to develop production facilities on the east coast.
The government’s recently produced
“Industrial Strategy for Offshore
Wind” forecasts that continued
growth in the industry could create
up to 30,000 jobs by 2020.
xxxxxxxxxxxxx
Kolumnentitel
gets. Reducing the cost of offshore
wind and therefore its reliance on
government is the best way to ensure
a future for the industry. Offshore
wind costs have fallen steadily. As
Michael Hannibal explains, “each
decade, we have reduced the cost of
energy by 40 percent. So far, this has
mainly been through turbine development, but looking ahead, we will
need other innovations.”
The future cost trajectory is subject
to debate, however. The UK government and the industry agree that a
target of £100 per megawatt-hour by
2020 is achievable, compared to perhaps £140 now, of which turbines
represent around 40 percent of the
investment cost. Hannibal believes
€100 per megawatt-hour is attainable
by 2020, with improvements expected
in the balance of plant, such as concerning the foundations and electrical
infrastructure. But Liebreich’s colleague, Justin Wu, thinks that
£118–120 is more likely, citing bottle-
necks for items such as installation
ships, as projects move ever further
offshore.
However, positive signs are also in
evidence. Siemens has entered into
a framework contract with DONG
Energy for 300 offshore turbines.
This milestone marks a clear
evolution from the project-by-project
basis that has guided manufacturing
until now to a standardized serial
production basis. The success of London Array shows politicians, investors, and the public what offshore
wind can achieve. More projects like
this in Great Britain and elsewhere
will cement Siemens’ market leadership and help the industry deliver its
potential as a major contributor to a
low-carbon future. p
“As an island
nation, and with
our weather,
you could say it
was technology
designed for us.”
Nick Clegg,
British Deputy Prime Minister
Dennis White is a London-based business and
technology journalist specializing in energy
markets. His work has been published by several leading British media outlets.
Living Energy · No. 9 | December 2013
81