The sixth article (please see the end of this article for links to others) in our offshore wind series considers what the future of the operation and maintenance ('O&M') of UK based offshore wind may look like. The UK offshore wind industry has seen a rapid growth in the past decade. In fact, there is currently more than 10.4GW of capacity now installed in UK waters and North Sea installations now make up 79 per cent of all European (EU27 plus UK) offshore wind.
With the UK’s Climate Change Committee highlighting the need to increase the UK’s offshore wind capacity to 100 GW to meet the UK’s Net Zero ambition, we anticipate an even faster rate of growth in the sector in the coming years. Further, with the UK Government setting its sights on reforming offshore maritime operations with its recent road map to decarbonising the O&M phase of North Sea maritime operations (the 'Roadmap'), it is likely that the area will significantly evolve over the coming years.
The O&M cost of any offshore project is a significant factor in calculating the levelised costs of the electricity (the measure by which a project’s economic viability is assessed). This is unsurprising given: (i) that a typical O&M phase of an offshore windfarm’s lifecycle typically lasts 25-30 years; and (ii) the extensive scope of services which may be offered by an operator under an O&M contract. Possible services covered by an O&M contract could include:
- scheduled maintenance;
- reactive maintenance (unscheduled maintenance required for the continued operation of the windfarm);
- shore side monitoring;
- drafting O&M plans and budgets;
- sourcing of consumables, spare parts and ancillary components; and
- accreditation compliance.
In contrast to most construction sub-sectors, there is no O&M standard form contract upon which parties can rely on. Instead, it is typical to encounter bespoke O&M contracts, which are usually heavily in favour of the proposing party and uniquely tailored to the specific facts of each project.
To add to the complexity of the O&M sphere, many offshore windfarm projects actually require several O&M contracts given the rules governing the splitting of the transmission and generation assets. The first relates to the cable and transmission infrastructure, the operation and maintenance of which is divested to offshore transmission owners ('OFTOs') via a competitive tendering process (discussed in more detail in 'Offshore transmission – will point to point connection become pointless in an integrated future?'). The second is the contract relating to the operation and maintenance of the actual offshore wind turbines.
Irrespective of which of these O&M contracts is being considered, operators will have a heavy reliance on extensive maritime logistics between the shore and the offshore assets. This will include the chartering of vessels to facilitate: (i) the transportation and accommodation of technicians; and (ii) the transportation and installation of spare parts, consumables and tools. Whilst some large-scale operators possess their own crew transfer vessels (or procure these on a long charter), many of the more specialist offshore support vessels are procured on an ad-hoc basis as and when scheduled and unscheduled maintenance needs arise.
Challenges facing the current O&M landscape
Ultimately, the challenges facing the O&M phase of any offshore wind project stem from the unprecedented demand growth in the sector. This growth is being catalysed by the international focus on reducing carbon emissions globally. To take an example outside of the UK, the European Union has set a target of increasing its offshore wind power generation from the current approximate capacity of 25 GW to 300GW by 2050.
Below are three of the major challenges we foresee for the O&M industry in the coming years.
1. Wind Turbine Technology: Bigger & Further Is Better
The political pressure to increase overall electrical capacity has led to innovation in wind turbine technology.
Firstly, wind turbines have been getting larger over time. Larger blades can capture more wind, which in turn means more torque is produced and driven into the electrical generators located in the nacelle. Additionally, larger blades have a greater aerodynamic efficiency, meaning that less energy is wasted as it is moved into the transmission system. The towers supporting these blades are also getting larger, partly because of the need for additional structural support for the larger blades, but also due to higher altitudes being more favourable for power generation.
To put this into perspective, the first UK commercial windfarm installed in 2003, North Hoyle, consisted of 2MW Vestas turbines with a rotor diameter of 80m (the diameter of circle swept by a turbine’s blades). By contrast, last year Siemens Gamesa unveiled the SG14-222 DD wind turbine with a rotor diameter of 222m and 14MW capacity.
Secondly, the pursuit for greater efficiency has resulted in windfarms being located further out to sea, where wind conditions are more favourable for power generation. Traditional fixed-bottom windfarms, which have their base rooted in the seabed, are limited to locations where the sea depths are no more than approximately 40m. In practice this means traditional offshore site cannot be located further than 30km from the shore, often less. However, recent technology such as that deployed in the Hywind Scotland project, has allowed turbines to be fixed to buoyant platforms, meaning they can be deployed much further from the shore. The latest project to capitalise on such technology, Hywind Tampen, is planned to be located 140km off the Norwegian coast.
Whilst these innovative technologies are undoubtedly a positive step for the sector, they bring with them their own challenges for the O&M phase. In the first instance, having windfarms located further from shore will increase the transport time of the offshore support vessels engaged throughout the O&M period. This will result in increased O&M costs as longer charters are required to make the same number of voyages and additional fuel is consumed over the length of each charter. Moreover, there is a risk for increased periods of turbine downtime due to malfunctions, as it will take longer for technicians to mobilise to the turbine site to conduct the unscheduled maintenance.
Furthermore, the increase in the size of wind turbines requires increasingly specialist vessels that will be needed during the O&M phase. Whilst some of the traditional vessels will still be used for minor routine operations (e.g. crew transfer vessels), the scale of the technology employed in more modern wind turbines will need larger bespoke vessels capable of transporting parts such as the 108m long blades used in SG14-222 DD turbine. In addition to the increased charter cost likely to be commanded by such bespoke vessels, their increased size may also prevent them from berthing in traditional O&M port bases. As such, there may be a need to increase investment in O&M port base infrastructure to facilitate the use of these larger specialist vessels, a point which we discuss in our article relating to supply chain pressures, which can be found here.
2. Supply Shortage of Vessels and Spare Parts
The increased activity in the sector has increased demand for the specialised vessels used within the O&M phase. Ultimately this will lead to the same problem currently experienced in the offshore installation vessel market - a shortage in vessel supply.
Research by Rystad Energy, comparing the current pipeline of global offshore projects against the current supply of suitable offshore vessels, shows that by mid-2020, the demand for offshore vessels will be four to five times higher than current levels, resulting in a potentially significant vessel shortage.
Likewise, the shift in building bigger wind farms consisting of significantly larger turbine has a substantial impact on the sourcing and storage of spare parts. In order to minimise turbine downtime, a number of spare parts are often sourced and stored by the operator at the O&M port base. In fact, ORE Catapult has published a report to highlight how the industry can learn from the comparatively more mature aerospace industry in this respect. Some of the suggestions within that report include: (i) improving the data collection used to develop spare part management; (ii) creating an open-source visual data dashboard to increase engagement; and (iii) automation of repetitive systemic tasks.
With the trend of the sector, operators will need to consider increasing storage space for these components as: (i) each component will only get bigger; and (ii) more spare components will be needed to meet the minimum risk of unscheduled maintenance, given the increase in the number of turbines per wind farm.
In turn, operators will need to think about the associated increased insurance costs that will inevitably arise when storing a larger inventory. Likewise, with the anticipated shortage of offshore support vessels capable of carrying such equipment, there will likely be a longer wait time between ordering and receiving the spare components as the vessel industry looks to meet the increased demand.
3. Decarbonising the O&M Phase
Another area of focus over the coming years will be decarbonisation of the O&M phase. Given the geographic concentration of offshore wind farms in the UK in clusters, it was only a matter of time before the UK Government set its sights on the sector in an effort to meet its Net Zero targets.
To this end, the UK government recently published the Roadmap, outlining how the O&M phase may be decarbonised in the future. The Government’s focus on decarbonising the sector is unsurprising, given that the vessels used in these operations are estimated to be responsible for 284 kt CO2e / year globally. Without a radical change, this figure is only going to increase as vessels are required to lift heavier components for greater distances.
Early adoption of new vessel and port infrastructure technologies will be vital in minimising carbon emissions during the O&M phase. Whilst, the number of promising technologies in this sector are vast (some of which we discuss below), it is widely accepted that economic and regulatory hurdles must be addressed before emergent technologies secure widespread adoption. It would be impossible to discuss all challenges here, but we identify below a select few which we believe to be the most prevalent.
Cost - investment and adoption of new technologies involves a high start-capital cost. New build low-carbon vessels currently come at a premium in the market and even retrofitted vessels incur significant initial and continuing costs. Moreover, it is not enough that vessels themselves are fitted with clean technologies; shore-side infrastructure must also develop to facilitate the corresponding fuel storage and fuel delivery. These costs are significantly higher compared to the status quo of fossil fuel technologies which, in turn, hinders the acceptance of the emergent technologies.
Proven solutions -there is a huge variety of potential technologies promising to address the carbon emission issue. Whilst this in itself promotes market efficiencies through competition, it is a source of uncertainty for stakeholders in the market. As the Roadmap highlights, such uncertainty is a barrier to the adoption of new clean technologies. Vessel owners are reluctant to commit the significant investment required for any one clean technology, whilst it is unclear which technology will receive widespread global support in the future. As these technologies are deployed, the market will naturally settle on preferred options. The regulatory and health & safety procedures that will govern such technology will also need to be clarified in due course to allow for stakeholders to understand ongoing commitments, procedures and training required for the adoption of such technology.
Charter issues - the current market for vessel chartering does not lend itself to the investment and adoption of new vessel technologies. As vessels become more specialised, their general utility in other types of projects decrease. Accordingly, the market for their employment decreases. Likewise, short-term spot charters are highly susceptible to volatile charter rates, making it very difficult for vessel owners to reliably calculate future revenue streams. In both cases, this translates to uncertainty for vessel owners either in terms of: (i) future charterparty demand; and/or (ii) the profit margins on any future charterparty. With that in mind, it is not surprising that there is reluctance to commit new investment in new vessel and shore-side technology although, this may change as the market for such specialised vessels increases globally.
It is clear that, whilst the sector will undergo significant growth and development, industry practices and the political landscape must evolve to facilitate future success. Here are some of our thoughts on how the industry could adapt to meet some of the existing challenges:
A. O&M Management
There are several solutions we foresee being adopted by the O&M operators themselves, some of which we are already being adopted in the market.
We are seeing an increased number of framework agreements being entered into between O&M operators and offshore support vessel owners. In essence, these framework contracts comprise of all the operative provisions which are to apply to any future charter entered into between the parties.
In theory, these framework agreements should reduce the time and cost the parties spend on negotiating each individual charterparty and thereby minimise delay in mobilising the vessel to the site. In practice, however, such framework contracts need to be supplemented by project-specific work orders and call-off terms to accommodate unique aspects of any given campaign. Accordingly, the success of framework agreements varies greatly depending on the project and mentalities of the parties.
In addressing the challenges mentioned above, such framework agreements could incorporate exclusivity rights or rights of first refusal for vessel owners (perhaps in exchange for fixing charter rates), ensuring they have a more certain charter stream for the duration of the framework agreement.
Secondly, we anticipate that that the sector will make use of Sale-Charterback deals which are already utilised in the wider maritime industry. One variation of such deal involves institutional vessel charterers negotiating ship building contracts with ship yards for specific, usually technologically advanced, vessels. This ship building contract is then tendered to vessel owners who would assume the responsibility for the ship building contract and the resulting vessel. In return, the ship charterer guarantees to enter into a long-term charter on pre-agreed terms with the owner. Such structure is already used in the industry, most prominently for the construction and operation of sophisticated LNG-fuelled vessels.
These structures enable the charterer to use a vessel (of predetermined specifications), without the responsibility of operating the vessel. Likewise, the owner is able to use its expertise in operating the vessel, while having commercial security of a long term charter for the vessel. As mentioned above, it was this commercial uncertainty in future charter revenue which proved to be one of the barriers for vessel owners in investing in new vessel technology.
O&M Infrastructure Hubs
Lastly, we believe we will see a greater move to localised hubs for offshore wind projects, especially in relation to shore side infrastructure. By concentrating O&M infrastructure within a geographic region, O&M operators will be able to benefit from economies of scale. This would be especially beneficial for the increased storage space that would be required for the storage of spare turbine components. By having the increased capacity onshore, O&M operators would be less susceptible to delays in the supply chain as they wait for the required vessels to become available to transport the spare parts from the manufacturer. Moreover, by concentrating O&M infrastructure, investment into new shore-side would become more efficient.
We could easily have dedicated a whole article to the emerging technologies which aim to revolutionise the sector. Here we highlight just some of the possible technologies which aim to address some of the issues mentioned so far.
Certain emerging technologies aim at substituting traditional fossil fuel technology with alternative cleaner methods of propulsion. These include:
- LNG – The use of LNG as a maritime fuel is already gaining traction, with 163 LNG-fuelled ships in existence in 2019. The use of LNG, whilst not entirely free of pollutant gases, is significantly better than the use of fossil fuels. Unfortunately, vessel and shore-side infrastructure is expensive, on account of the need to cool and insulate the LNG at the operational temperature of -162 degrees Celsius.
- Hydrogen – Hydrogen is fast becoming recognised as a suitable future fuel across numerous sectors, including the offshore industry. We discussed in detail this fuel technology, including 'Green Hydrogen', in our article 'Offshore Wind – Exploring the advent of Green Hydrogen Power'. Such technology is already being trialled across the word, such as the HyDIME project which uses green hydrogen to fuel a commercial ferry between Shapinsay and Kirkwall, Orkney.
- Methanol – Whilst methanol is traditionally produced through fossil fuels, it can be generated through renewable sources or through the fermentation of biomass. This fuel technology generates up to 95 per cent less CO2 emission than traditional fuels. There are numerous vessels using this propulsion technology already, including 11 methanol fuel tankers built by Waterfront Shipping, with a further 8 on order for delivery between 2021-23.
Alternatively, technology is being developed which focuses on making the supply chain more efficient and minimise travel:
- Walk to Work ('W2W') Vessels – These offshore specific vessels are equipped with advanced stabilisation technology which dampens the motion of the vessel and gangway connecting it to the wind turbine. Being equipped with accommodation facilities on board, they are increasingly being seen as satellite offshore bases which enable engineers to travel to turbine locations at short notice.
- Offshore Recharging Connections – Several technologies are in development which aim to create safe offshore locations for vessels to berth and refuel / recharge without returning to the O&M base. These vary wildly in scale and stages of development. Maersk’s Power Buoy, for example, has received a grant of DKK 22 million for its demonstrator project. Conversely, the Danish Government has agreed to take a majority stake in a £25 billion energy island project, scheduled for completion in 2033. The energy island will be 120,000m2 and generate its own power through renewable sources, which it can then channel to berthed vessels.
- Artificial Intelligence Tools – Perhaps less exciting is the use of data-driven software which aims to collect and analyse emission data from all aspects of an offshore project. Such software attempts to identify operational stages where there is significant margin for improvement in respect of reducing emissions. Equinor, for example, has ambitions to half their maritime emissions in Norway by 2030, and globally by 2050, with the use of such software.
Ultimately, the adoption of emergent technologies such as these will need to be supported by the regulatory and political framework which underpins the sector.
C. Regulatory and Political Action
Without initial governmental intervention and financial incentives, these emergent technologies and methods are unlikely to reach a point where economies of scale and developed production infrastructure make them economically feasible in their own right.
The current market is such that emergent technologies are comparatively more expensive than traditional technologies. Without market intervention, this is unlikely to change in the foreseeable future. As the Roadmap identifies, O&M fleet decarbonisation could be incentivised through rental discounts during The Crown Estate’s Leasing Rounds or similar mechanisms during the CfD auction process. In this way stakeholders are forced to review their working practices and embrace innovative solutions to gain a commercial or economic advantage.
The UK government must step up and provide clarity and leadership in terms of how it intends to support the evolution of the O&M phase. Until such clarity is provided, there will be insufficient critical mass to support any one emergent technology. The most obvious step forward for the Government in this respect would be to outline its approach in the upcoming Hydrogen Strategy, which is expected to be published later in the year. That alone will not be enough though, and going forward the Government will have to work with the industry to clarify upcoming regulatory and legislative frameworks that would underpin the future of the O&M phase.
It is difficult to identify exactly what the future landscape of the O&M industry will look like. However, what can be said with some certainty, is that it will be significantly different to its current state.
As the industry grows into a more mature stage, we anticipate to see a raft of developments relating to O&M Operator practices, the O&M Phase supply chain and technology and the regulatory regimes which underpin the sector. Given the political spotlight on the industry, this evolution is inevitable.
Should you have any thoughts or queries in relation to the development of offshore O&M, our offshore wind specialists are always available to discuss the process with you.
For the other articles in our offshore wind series, please see: Offshore Wind - A brief appraisal of offshore wind, 20 years from the first project