9 June 2011 | Lindsay Clark

The UK offshore wind industry is one of the biggest investment programmes in the world. And with miles of coastline there’s a huge opportunity but also a big challenge to ramp up a supply chain from scratch. Lindsay Clark reports

Buyers: your country needs you. The place of procurement at the centre of the political crucible has been underscored by the government’s push for savings to plug the deficit. But the public sector is also expected to play its part by helping bolster the economy following the worst recession since the war.
Nowhere is this more apparent than the burgeoning offshore wind power industry, where greening the economy and rebalancing it towards manufacturing come together.

In a speech in January, Prime Minister David Cameron said: “The global green energy market – everything from wind turbines to home insulation to solar panels – is going to be worth trillions of pounds in the years to come and I’m determined that the UK should have a big piece of that pie.”

While most of the operators and top-tier manufacturers in offshore wind power are foreign firms, the government has high hopes that they will create a UK supply chain of innovative green-tech manufacturers. And UK plc could use this opportunity to reduce its dependence on financial services and rejuvenate its beleaguered manufacturing sector.

Energy analysts Douglas-Westwood estimates the sector will attract €38 billion (£33 billion) of worldwide investment over the next five years. With money flowing into the industry, competition among suppliers should be rife, making the role of procurement professionals an easy one. But it is not so simple.

According to Douglas-Westwood, capital expenditure in the UK will peak at €5 billion
(£4.4 billion) in 2012, but fall by 93 per cent in 2013 and remain subdued in 2014, before climbing steeply once more during the following year. This is partly because the Crown Estate, the agency that manages land owned by the Crown and pays profit to the Treasury, releases the seabed needed for development in a series of rounds.

Suppliers could be forgiven for being cautious about entering a market where spending comes and goes, and is dependent on political will. While the government is pouring £200 million into green energy, including £60 million into adapting ports to accommodate large wind turbine components, it remains for suppliers to invest in their own production capacity.

German engineering giant Siemens has already stepped up, by signing a deal with Associated British Ports (ABP) to develop the Green Port Hull facility. The parties have agreed to work together to develop plans for the construction of a Siemens offshore wind turbine manufacturing and export plant.

Siemens has a strong interest in the UK offshore wind market, but its buyers are faced with the challenge of keeping suppliers on board while spending filters through. Bill Johnson, procurement manager, Siemens Transmission & Distribution, says: “You’ve got this big lull then there’s a major investment in terms of the supply chain.”

During this period, Siemens is engaging with the electricity firms developing offshore wind sites to try to get the supply chain engaged as early as it can. This would ensure there is enough capacity when demand starts to climb. “You can’t wait, if everybody is sitting around, then all of a sudden you’ve got a problem where capacity can’t meet demand,” Johnson says. “A lot of [suppliers] are aware that there is a bit of a time delay to when some of these investments will start to materialise.”

Through a series of supplier events, Siemens has been working with companies attempting to convert to the offshore wind sector from related industries, such as offshore oil and gas, or on-shore electricity transmission. This helps ensure that potential vendors are able to meet industry needs before tenders come up, says Jamie Rowlands, general manager of offshore service for Siemens. “These companies know about it, they read it in the media. They have a strategy of working in the wind industry but a quick five minutes with us calibrates what they think and what we should be doing.”

This early engagement with suppliers together with the offshore wind industry’s high media profile has encouraged investment, Rowlands says. This is important when you consider the lead times for building a service vessel, which could be two years. “Before, there was a lot of drawing on paper, but a lot of those have now turned into a reality – they are taking a punt on it,” he says.

Planning pitfalls

The Crown Estate has introduced an intermediary round of projects, dubbed “2.5”, to mitigate any spending hiatus between rounds two and three. This is because although the Crown Estate announced successful bidders for round three in 2010, it could take years before spending filters through the supply chain, as projects must wait for consent before construction starts (see timeline).
However, the release of seabed is only one of the issues that could hold up projects. “Planning issues is something where there are so many stakeholders involved,” says Frank Wright, Douglas-Westwood senior analyst for renewables. “In some other countries, such as Denmark, there is more of a one-stop-shop approach.”

With round three entering the planning process, there are billions of pounds on the horizon. “The issues for anyone investing in a new vessel or factory are: they want to know when the project is going to be built, if it has all the permits to build, and whether they’ve got the contracts before they make the investments,” Wright says.

One approach to mitigating risks of a shortage of investment is for firms to buy stakes in their strategic vendors, he says. Last year, for example, Scottish and Southern Energy (SSE) acquired a 15 per cent, £11 million, stake in Burntisland Fabrications, which makes concrete casing for wind turbine foundations. He also emphasised that the Crown Estate was working with the supply chain to help it understand the technologies required and investment timetable.

Adrian Fox, supply chain manager with the Crown Estate, says allowing development in discrete rounds is vital. “It’s inevitable in any kind of programme that is a new frontier,” he says.

While round one was a pilot project, and round two assessed commercial viability, round three would see a “real commercial industry” to meet government green energy targets. A pause between each round was necessary to ensure lessons were embedded in the planning and tendering process, Fox says. This included reform of the planning process.

“I would agree that it was not helpful, but when you’re doing things in stages, you do learn from the earlier stage. There were bottlenecks, there were delays: a lot of what round three is about is removing those bottlenecks and mitigating those risks.”

Round three will be different because developers will not be reliant on projects coming on board one at a time. Instead, they will be able to develop several projects within particular zones, and move suppliers to a new project should one be delayed, Fox says.

Siemens’ Johnson says suppliers are already aligning themselves with the key contractors to ensure they get a piece of the spending boom resulting from the round three development in 2015. Only after that will procurement know if it has done enough to ensure it has the right suppliers – and whether it has helped breathe new life into UK manufacturing.

Greening the economy

How the national interest and a push for sustainable supply chains are coinciding

As UK Prime Minister David Cameron announced a £60 million package to help ports adapt to offshore wind technology, he told the Confederation of British Industry in October “the potential for Britain to lead in this industry is immense”.

But how much can procurement do to ensure UK companies benefit from this spending boom? While EU law prevents the Crown Estate from specifying that work is done by UK firms, it can move to ensure the supply chain is low carbon, says its supply chain manager Adrian Fox.

“One way of dealing with the localisation issue is making sure the supply chain is carbon efficient. If
we can get the carbon footprint of manufacturing down in the UK by delivering to sites, rather than shipping around the world from Asia – that shows there are ways around this which aren’t directly ‘buy British’.”

It is working with the trade body for the UK wind and marine renewables industries, RenewableUK, on a supply chain charter to encourage sustainable supply chains which could favour local vendors. 

Turbine timeline

April 2001
Round 1. Following a pre-qualification process, the Crown Estate awards 18 companies agreements for leases totalling about 1 GW (gigawatt) in the first round of offshore wind farm sites on the UK seabed. This is largely to determine the viability of engineering. 

July 2003
Round 2. Department of Trade and Industry asks the Crown Estate to invite developers to bid for site option agreements in the second offshore wind farm round, on a much more ambitious scale than in the first round in 2001, to determine commercial viability. 

June 2008
The Crown Estate announces proposals for the third round of offshore wind farm leasing, where it will co-invest with developers, combining technical experience with access to stakeholders. Designed to be full-scale commercial development of offshore wind. 

2010
January: The Crown Estate announces the successful bidders for the nine round-three offshore wind zones.
October: Spanish manufacturer Gamesa chooses the UK as the centre of its offshore wind business and will invest €150m (£133m) up to 2014. 

2012 onwards
2012/13: Round three. Site consents set to be awarded to top-tier developers, after which spending will move through the supply chain.
2014: Construction to commence on round-three sites. They are expected to start producing electricity in 2016.