Scenario mapping for offshore renewable energy development economic benefits: case studies

7. Conclusions

The ‘as-is’ analysis looked at the economic impacts delivered by four different offshore renewable energy projects in Scotland. A ‘what-if’ analysis was then undertaken to see what could have been delivered by similar projects, had they used the maximum realistic Scottish content from the existing supply chain. A high-level overview and comparison of the outcomes from the two analyses can be seen in Table 17.

Table 17 Summary of ‘As-is’ and ‘What-if’ scenarios

		As-is		What-if
Project	Impact	Scotland	Local	Scotland	Local
Beatrice	% content	29.6%	11.7%	39.2%	12.3%
	Value-added (millions)	£1,300	£444	£1,716	£465
	Earnings (millions)	£506	£227	£667	£243
	FTE years	11,620	5,070	15,810	5,290
NNG	% content	29.3%	11.9%	38.2%	11.9%
	Value-added (millions)	£980	£342	£1,277	£342
	Earnings (millions)	£382	£174	£497	£174
	FTE years	9,040	3,910	11,770	3,910
Hywind	% content	19.9%	9%	44.4%	17.3%
	Value-added (millions)	£68	£26	£171	£59
	Earnings (millions)	£27	£12.5	£71	£23.5
	FTE years	690	295	1,625	600
MeyGen	% content	40%	14.5%	51.3%	15.1%
	Value-added (millions)	£41	£13.5	£54	£13.5
	Earnings (millions)	£16	£6.5	£34	£8.5
	FTE years	520	175	970	260

Recommendations to address opportunities and barriers

In this section we consider the opportunities and barriers in relation to maximising Scottish content in the supply chain for offshore renewable energy projects and make recommendations for increasing the Scottish content of renewable energy development projects.

We considered opportunities and barriers as they relate to the six categories of the supply chain taxonomy used throughout this report.

7.1. Opportunities and barriers

Development and project management

Development and project management represents an opportunity for Scotland to further develop expertise that will both maximise the Scottish content in the supply chain and in turn support the development of offshore renewable projects globally.

Scotland has considerable competence and expertise in development services (such as environmental engineering), subsea engineering and marine operations, building on experience from the oil and gas, and the onshore renewables sectors. These are areas where Scotland should look to transfer this competence to offshore renewables to establish a leading position and reputation for excellence, which can support export to other markets.

The most significant barrier is competition from outside Scotland providing services to Scottish offshore renewable energy projects, and Scottish businesses competing with local expertise in export markets with lower cost bases. The ScotWind leasing rounds could also bring new developers to the Scottish market with established offices elsewhere and non-Scottish supply chains.

Turbine supply

Wind

Wind turbine supply is not considered a significant opportunity for Scotland.

There is no offshore wind nacelle assembly in the UK. This is unlikely to change as almost all components are supplied from mainland Europe and a UK factory would face additional component delivery costs.

There are two blade manufacturing plants in England. Further investment in blade production facilities is possible in the UK, but there are no compelling reasons why it would be in Scotland, rather than elsewhere in the UK.

Scotland has had some tower manufacturing with CS Wind, but it does not have the infrastructure to manufacture all the tower sections for turbine suppliers. Increased Scottish capability is most likely to be achieved with investment at a new site, most likely on the east coast.

While there is potential for new offshore wind turbine production facilities in Europe, there is no compelling reason why these would be in Scotland.

Tidal

Tidal turbine supply does represent an opportunity for Scotland, but this will only have a significant economic impact if there is a substantial pipeline of projects. Current cost projections and government policies seem unlikely to provide that.

For tidal turbines there is intellectual property and capability in Scotland, and Scottish tidal turbines (for example Orbital). As pre-commercial stage businesses, Scottish turbine suppliers face a barrier in meeting the finance and warranty requirements of large commercial tidal projects, should a pipeline of such projects emerge.

Balance of plant

Balance of plant costs are a significant cost of energy for all renewables and if a high proportion of Scottish or local content is to be secured, our supply chain must be able to compete on costs.

Fixed and floating foundations

Generally, Scottish companies have found it difficult to compete with other European and Asian fabricators. Substructure fabrication in Scotland was not deemed to be commercially competitive for Hywind. A small minority of the jackets at Beatrice were manufactured in Scotland. The current Scottish fabrication facilities and methods were developed and optimised to support the offshore oil and gas sector. With a couple of modest exceptions, the cost base of the existing suppliers and facilities is too high, and the track record of volume manufacturing is not there. As it stands, if Scottish content in fabrication is mandated, there is a risk that Scottish projects will be uncompetitive and have a higher investment risk profile.

In Asia, the challenge comes from lower wage economies, while in Europe, many competitors have both lower wage costs and have invested in facilities for high volume production. While Asian labour costs cannot be matched, Scottish companies could become competitive to European competitors for many activities following investment. A prerequisite for this will be a robust pipeline of projects in Scotland.

Government could invest in port and manufacturing facilities to ensure that they meet quality, schedule and HSE requirements for large-scale serial production, as well as enabling high productivity and efficiency to ensure competitive pricing.

Investor risk is one of the biggest barriers to developing greater supply chain content. Reduction in investment risk and return has been the largest factor in the recent rapid reduction in the cost of energy from offshore wind. Large projects now require low investment risk to allow them to construct at the low CfD prices secured. This means that only proven suppliers that have achieved scale in their manufacturing capacity will be used. A Scottish supplier with no track record looking to enter the sector and scale up may be able to compete on price in an attempt to win contracts, but is likely to be seen as unacceptable from an execution risk perspective on all but the smallest projects.

This means that the most effective route to achieving higher local manufacturing content in balance of plant may be to encourage further inward investment from component or subsystem fabricators. However, in the case of fabrication it may be possible and more beneficial to try to broker and support a joint venture approach to attempt to create knowledge transfer and local credibility, and thereby a more persistent economic benefit.

The public and private sectors need to come together to identify strategic fabrication investments and particularly partnerships. Partnerships could be built around reducing the cost of set-up by making use of existing plant and facilities under the ownership or control of Scottish companies. This could attract world-leading fabricators to invest in and establish a presence in Scotland and should effectively tackle the investment risk issue. A prerequisite for this will be a robust pipeline of projects in Scotland.

With the downturn of the oil and gas, and ship building industries, fabricators are reporting that the pool of suitably qualified labour is shrinking. An investment in skills would therefore be required to support any investment in the facilities or suppliers.

The manufacturing of floating offshore wind foundations needs local sites where structures can be assembled and floated to site. The steel fabrication could be done locally or elsewhere, but assembly prior to deployment would need to be completed in Scotland.

For tidal energy projects, both fabrication and assembly offer an opportunity for growth, should a pipeline of commercial projects emerge. Turbines with modular designs mean that the steel can come from elsewhere, but the assembly and testing can happen in Scotland.

Electrical

Electrical systems have a largely European component supply chain with system engineering by the major suppliers from centres of excellence. There are no indications to suggest that any of this will move from current locations.

Substation platforms have been manufactured in Scotland at Rosyth. A challenge for suppliers has been the high risks and low margins that have resulted from a highly competitive market. This potentially could disincline Scottish manufacturers from bidding for offshore wind contracts.

Cable production is distributed across Europe and suppliers typically invest at existing sites. There is opportunity in Scotland for companies that do supply cables and umbilicals to the oil and gas industry, but this has so far not resulted in awards for offshore renewables. Existing Scottish capability is in medium voltage cables (suitable for array cabling) and this tends to offer lower margins than high voltage (export) cables. It is unknown what actions could encourage Scottish companies to diversify into cables for renewables.

The top three barriers to growing content in this area are:

• Lack of track record and scale
• High cost, and
• Availability of skills.

The analysis above is based around Scottish companies competing to supply established solutions. In many areas there remain considerable opportunities for innovation and improved technical solutions. If improved technologies and designs can be created and qualified in Scotland, then this would significantly change the prospects for securing a larger proportion of the value content and would also deliver further value through access to export markets. These aspects are dealt with in the following section.

Installation and commissioning

The development of port facilities represents an opportunity for Scotland, although it is important to note that port expenditure represents about 1% of CAPEX and does not lead to significant local employment.

The major installation contracts are placed with large marine contractors with significant vessel fleets. There is currently only one contractor with a Scottish presence, although it is only the engineering and project management that would be delivered from Scotland. Floating wind and tidal energy have distinct vessels, but with installation methods uncertain for commercial scale projects, it is unclear whether these sectors create a new opportunity for Scotland. It is notable than many oil and gas vessels in Aberdeen are in foreign ownership.

The greatest opportunity in installation is likely to come from offshore and subsea engineering companies, providing either services or equipment. Scotland has significant strengths here in the oil and gas industry. Many have taken the strategic step into renewables, but the full potential has not yet been realised.

The major barrier has been the perceived credibility of offshore renewables, but this is rapidly changing. The construction of major projects such as Beatrice, NNG and Seagreen is likely to be a catalyst for change.

OMS

OMS represent a significant opportunity to grow Scottish content in offshore renewable energy projects. Capturing benefits in the operations and maintenance phase alone would deliver significant long-term benefits to coastal communities.

Scotland has considerable competence and expertise in OMS, largely building on experience from the oil and gas, and onshore renewables sectors.

This is an area where Scotland should look to transfer this competence to offshore wind to establish a leading position and reputation for excellence, which can support export to other markets.

In tidal operations and maintenance is the biggest opportunity for Scottish suppliers.

Barriers

• Proven track record vs established players
• Cost base, and
• Current vessel portfolio.

Summary of opportunities and barriers

It is apparent that there are opportunities to increase the Scottish content of offshore renewable energy projects.

The barriers are two-fold. First, investment in facilities and capability is required for Scotland to deliver at the scale and cost required to be competitive with facilities elsewhere. This is particularly true with regards to fabrication and assembly. Secondly, there is the issue of cost. If higher Scottish content is required, Government might need to accept that LCOE from Scottish renewable energy projects will increase, at least for earlier projects.

Ultimately, it is important to ensure that Scottish suppliers are competitive, which will enable them to capture a greater market share outside of Scotland, as well as support continued cost reduction.

Efforts to assist the local supply chain to secure contracts should be focused on ensuring that suppliers can win projects under competitive procurement processes, rather than imposing strict local content requirements.

Ensuring that domestic suppliers are competitive is the best way to ensure that a sustainable supply chain develops to deliver long-lasting benefits to Scotland. Competitive suppliers will also be able to capitalize on the considerable export opportunities.

7.2. Recommendations

Based on our analysis, we make recommendations across three themes:

• Encouraging pipeline volume through policy
• Opportunities in innovation.

There are three core areas where industry, Government and enablers should focus to maximise the potential for Scottish content in offshore renewable energy projects.

Build offshore wind pipeline volume

Building a pipeline of offshore wind projects ready to enter construction in the near to medium-term will enable Scottish suppliers to capitalise on the benefits offered by multi-billion-pound energy infrastructure investments around Scotland’s coastline.

A pipeline of projects could unlock investment from the supply chain. This includes existing domestic suppliers, but also inward investment from major tier one and two suppliers, which could deliver a step-change in local job creation.

Projects in Scotland will need to be competitive in the wider UK portfolio to provide confidence to supply chain investors and ensure that the economic opportunities can be realised. This has proved challenging with Scottish projects typically having higher capital costs (due to water depth and sea bed conditions) and high transmission costs, which penalise Scottish generators that are far from demand centres.

Regarding tidal energy projects, the cost of energy from tidal energy projects needs to be demonstrated to be competitive with other forms of generation before a pipeline of project is likely to materialise.

Floating wind and tidal

Scottish suppliers have the potential to become leading providers to the emerging floating offshore wind market, due to the evident synergies with the oil and gas sector.

To realise this opportunity it is vital to have a framework in place that encourages developers to pursue a significant volume of commercial floating projects in ScotWind.

This framework needs to include regulatory policies that give investors sight of a significant volume of projects to be delivered over the next decade or more. This regulatory framework needs to work hand in hand with an industrial strategy that delivers investment in floating wind fabrication infrastructure.

After having led technology development and early deployment for many years Scotland is now falling behind the rest of the world. In order to secure long term and persistent value in this sector we must re-establish a well-designed deployment programme.

Innovation

A valuable approach would be to use Scottish projects to qualify improved methods or technology for the wider industry. Scottish Government support could be directed at supporting the inclusion of new technology in commercial projects through grants and risk sharing.

New improved technology, methods or operating practices offers not only reduced cost and increased local value in domestic projects but creates the platform for exports to the entire global market. Scotland created a global lead in subsea technology for aggressive sites and with the North Sea now in decline has turned to exporting this to the global market creating GVA long after the domestic opportunity is over.

Innovation needs to be targeted at key issues in the existing technical solutions and be in areas where the existing leading Scottish expertise lies.

A successful strategy would use Scottish projects to prove Scottish innovation – at low cost and risk to the developer, who still get their cheap product from a proven low risk supply chain overseas. The return would be not only higher local content on Scottish projects, but long-term Scottish competitive advantage in the global market. Value share of existing projects may remain modest, but the ultimate prize is much bigger.

Barriers are:

• Clear understanding and framing of opportunities for innovation
• Lack of domestic pipeline to engage and motivate the supply chain and research base to focus and invest, and
• Risk appetite in fully commercial projects.

Scotland has a clear opportunity to pursue a specialisation focus in technology innovation areas where there are existing strengths and potential to exploit competitive advantages, as opposed to spreading focus across too many areas and risk failing to deliver on potential in key areas.

Areas where Scotland has the opportunity to establish a world-leading position in fixed and floating wind and tidal systems, by way of example, include:

• Fixed and floating foundation solutions for deeper and rougher waters
• Offshore construction and installation technologies and processes suited to deeper, rougher locations
• Specific technologies and processes to improve the installation and grouting of fixed foundations
• Mooring system engineering, including fibre rope moorings for floating systems
• Mooring connectors
• Dynamic cable engineering
• Cable accessories and protection systems
• Cable connectors, and
• O&M subsea monitoring and inspection technologies.

These are areas where Scottish suppliers could be well-placed to serve both domestic and overseas markets, provided innovations can be commercialised.

Establishing manufacturing facilities for innovative products could represent an opportunity to capture a higher economic value from future projects in Scotland.

Despite being a more mature technology, there remains considerable scope for innovation in fixed offshore wind, particularly during the installation and OMS phases. Wind farm operators will be driven to reduce costs, improve health and safety, and better understand the performance of a growing fleet of assets. Developing new products and services in the OMS space will also offer export opportunities to the growing global offshore wind market.

Innovation in areas such as digitalisation, robotics, and subsea engineering could represent high value opportunities for Scottish suppliers, leveraging experience from the oil and gas and other marine sectors.

Perceived investor risk could be a barrier for innovation, but with right approach and qualification this could be offset by the higher expected returns.

The approach requires insight from developers and contractors as to current costs and risks at each stage in the process, to show where innovation is valuable or essential. Several such processes have been carried out by the industry such as the Offshore Wind Accelerator and Carbon Trust floating wind studies. However, there has not yet been a clear targeted study as to where the Scottish technology and manufacturing base could best focus its efforts. We recommend such a study is carried out as a priority, and that a tailored innovation programme is designed around its outcomes.