By Bryony Collins, BloombergNEF editor. This article first appeared on the Bloomberg Terminal.
There will be a “doubling of the pace” of offshore wind deployments in the U.K. over the next decade to reach an industry target of 30 gigawatts by 2030, up from 10 gigawatts in 2020, said Matthew Wright, managing director at Orsted A/S, in an interview with BloombergNEF.
The sector deal for offshore wind announced by the U.K. government last week underlines how the sector is “coming of age” and now makes an important contribution to the country’s economic development, Wright said.
The U.K. government’s Department for Business, Energy and Industrial Strategy sees offshore wind exports reaching 2.6 billion pounds ($3.4 billion) by 2030, and the number of jobs tripling in the sector to 27,000 by the end of the next decade. The commitment to dedicate 557 million pounds to less-established technologies such as offshore wind and to holding clean energy auctions every two years from this year onward provides certainty to the industry, allowing it to invest and innovate for the long-term, Wright said.
Orsted is also developing contingencies to implement in the case of a hard Brexit. Duties of 3 to 5 percent would be applied to imported components of offshore wind projects were World Trade Organization tariffs to be applied, said Wright. However, for projects built more than 12 nautical miles offshore, it would be possible to “import components and then re-export them from a customs warehouse, and avoid paying the customs duties,” Wright said. This would apply to projects such as Orsted’s Hornsea 1, which is currently under construction 120 kilometers offshore, he said.
Read the Q&A below for more detail about the sector deal and industry implications.
Q: What is the significance of the sector deal for offshore wind to Orsted?
A: It’s a very significant announcement – it demonstrates a coming of age of the offshore wind sector in the U.K.
It delivers on two key parts of government strategy. One is providing low-carbon energy for the grid, which is important in the context of climate change targets.
[Secondly], it’s about the contribution that [the offshore wind industry] now makes to the economic development and prosperity of the U.K., with the potential for increased jobs, skills and innovation. We see an opportunity to have U.K. Plc benefit from its position in offshore wind in a global context.
There’s a clear ambition for 30 gigawatts by 2030 and that’s the level that’s the industry has been asking to allow to take us to the next step. It’s roughly a doubling of the pace at which we’ve seen offshore wind deployed – from about 1 gigawatt per year to 2 gigawatts per year through the 2020s.
That allows the whole supply chain to think about the longer-term of projects in the U.K. It allows us to invest and innovate, with the certainty of a succession of auctions and a continuation of the policy around offshore wind for the next decade.
Q: How will that be achieved in terms of auctions?
A: The government has set aside 557 million pounds under the clean growth strategy to support less-established technologies including offshore wind. The policy commitment to auctions every two years is restated in the document. There will be about 10 gigawatts installed by 2020 and by 2030, 2 gigawatts per year gets us to 30 gigawatts in total. That would equate to about a third of U.K. electricity needs.
The policy framework is there and this restates that ambition in a way that gives the industry and supply chain the certainty to continue investing in the U.K. — create more jobs; improve competitiveness and drive down costs. And position the U.K. in this global trend for renewables and offshore wind in particular.
Q: Given the uncertainties around Brexit, do you see risks for U.K. manufacturing of wind turbines, in that there could be export tariffs placed on them, which could thwart industry development?
A: None of us know how Brexit will play out, and whether we will have any export or import tariffs. The plan is to seek to avoid those types of tariffs and levies from being applied.
From an import perspective, there is a way for us to avoid those tariffs being added to project costs in the U.K.
Q: How can those costs be avoided?
A: Under WTO rules, if they were applied in a hard Brexit scenario, duties of 3 to 5 percent would apply to some aspects of offshore wind projects, such as the electrical infrastructure and other components. But because the projects are now increasingly offshore beyond 12 nautical miles, you could import components and then re-export them from a customs warehouse, and avoid paying the customs duties. So effectively, because they’re only being imported for the purposes of being re-exported beyond this 12 nautical mile limit, then you wouldn’t actually pay import duties on those components.
And there may well be similar arrangements that can be made through trade deals with other countries in the context of exporting from the U.K. That’s something we’ve been looking at as a way to mitigate any impacts of a hard Brexit on our business.
Considering that our project Hornsea 1, that we’re building at the moment, is 120 kilometers offshore and that Hornsea 2 is 90 kilometers offshore – they are well outside the 12 nautical miles.
Q: The sector deal also states an intention to triple jobs in U.K. offshore wind to 27,000 by 2030, up from around 7,000 today. Will that translate to more manufacturing sites and turbines being made in the U.K.?
A: It could indeed. We’ve already got two blade factories in the U.K., a towers factory in Scotland and we could see other components made here also, such as foundations or export cables. So there are some manufacturing aspects, but there’s also other areas of potential for those jobs.
The U.K. is in the lead in terms of deploying offshore wind, so there’s many countries wanting to come here to see how to develop operations and maintenance bases. So there’s huge opportunity for companies to provide consultancy services – for surveying the sea bed, project management skills, vessels and all manner of support and ancillary services.
It’s not just about manufacturing services, but the multiplicity of skills that go into developing, operating and owning a wind farm over many years.
We have delegations from the U.S., Taiwan and Japan coming to visit places like Grimsby [in Northeast England], seeking to understand how offshore wind works and how to maximize the benefits to local economies.
Q: Do you see many skills and jobs from oil and gas, transitioning over to offshore wind?
A: Particularly in the early days, there were people who transitioned from one offshore sector to another. Increasingly, offshore wind has become a substantial sector in its own right, developing some of its own bespoke skills and abilities.
That said, we are looking to see how we can develop training programs and curricular colleges and schools that build transferable skills across sectors. Offshore wind is really benefiting from knowledge sharing with oil and gas, and technology with big data, AI and autonomous vehicles.
Q: Do you see the U.K. and Northern Europe continuing to lead in the manufacture of offshore wind turbines, or will it become more globalized?
A: We see it become more globalized. Offshore wind is developing in advanced established economies in Asia and on the eastern seaboard of the U.S., and these are geographies perfectly capable of manufacturing components. As we bid on projects in those geographies, part of the award criteria looks at how we can help develop the industry there, so it’s not just about building projects and importing components, but about how we contribute to the industrial strategy of those countries to take advantage of this new sector.
BloombergNEF’s projections for the global offshore wind market are detailed in the 2H 2018 Offshore Wind Market Outlook.