Much achieved, more to do
23rd August 2012
Curtailment of wind energy in the SEM
23rd August 2012

Offshore wind: Looking to the future

Group-shot Offshore wind is seen as a major global energy source of the future, as well as providing Ireland with new export opportunities. Mainstream Renewable Power brought together key stakeholders to discuss the current barriers and potential benefits of development.

What is the future outlook for offshore wind in Ireland, Europe and internationally?

Andy Kinsella

In this industry, the numbers speak for themselves. The ‘World Energy Outlook’ from the IEA states that by 2050 we will have between 500GW and 1,400GW from offshore wind. Looking at whichever end of this estimate you want, there will be a renewable industry unprecedented in scale.

The potential for Ireland is right on our doorsteps, even though all of this potential may not be in our jurisdiction. There are nearly 18GW of developments of offshore in the Irish Sea.

The UK has a ‘gone green’ target of 18GW for 2020. That in itself is a £60 billion investment.

The biggest news from last year was Germany’s commitment to phase out all the country’s nuclear power plants by 2022, and its target of 10GW of offshore wind by 2020 and 25GW by 2030.

The US is struggling to put processes, procedures and incentive mechanisms in place but there are six to seven states on the eastern seaboard establishing offshore wind targets and processes to permit, develop and consent offshore wind. The US Department of Energy has identified over 270MW of offshore wind potential.

In China’s latest five-year plan, they have committed to 150GW from offshore by 2050 from fixed foundations and 50GW from floating foundations.

So, between Europe, the States and China, the commitment is huge.

Michael Walsh

The scale of investment and development over the next 10-20 years is going to fundamentally change the way the electricity system operates. The challenge for policy-makers is to take a more systems-based approach.

The real challenge is how do you create stable conditions for investment but at the same time create efficiencies and right economic signals for people to bring forward the right developments?

It’s incredibly important that we get technology and standards right. We are looking at an unprecedented period of investment in the energy sector therefore it’s important that we build the right technologies in generation, transmission and connection. If we don’t get quite the right standards and technologies in at the start, they are next to impossible or incredibly expensive to put in later on.

PJ-Rudden-action-4 PJ Rudden

I’m looking at it from a European perspective. The outlook is excellent. There’s no doubt that ISLES is seen in the market as a ‘game changer’ in offshore wind development off Ireland in terms of a government-led roadmap towards implementation. The ‘connecting Europe’ policy is going to be backed up with funding of up to €9 billion that could kick-start or create a public sector incentive to provide certainty for funders, investors and developers in ‘priming the pump’, particularly in the Irish Sea.

To implement ISLES, we need this sea-change in planning, regulation and market recognition. If you get planning and regulation right, the markets will come.

We need to build on the ISLES report which is of a different order of magnitude, seriousness and technical rigour in European terms than anything that has been documented in Europe to date.

Brian Britton

Ireland is experiencing economic difficulties. Having implemented an unprecedented set of budgetary cuts, the Government is seeking to identify sectors where growth can be achieved and jobs created. I believe that renewable energy, particularly offshore wind with its unrivalled export potential, can be the stimulus to developing economic recovery. The offshore industry is ready to take off because when you look at the projects, mainly in the Irish Sea, we do have the potential for 6-7,000MW, with currently 2600MW consented or in the process.

Were we potentially to develop an export market of €10 billion from renewable resources, particularly offshore, then we could start to replicate the success stories this country has had in the indigenous sectors of agri-food and tourism. We cannot depend on FDI from the US, technology and pharmaceuticals forever.

Robert Wasson

We’ve got a natural resource on our doorstep that we can do something with. We need wind in the energy mix so why don’t we grab that opportunity, get good at it and go out internationally and do it there?

In Belfast, people are getting quite excited about the potential for the supply chain and servicing offshore. We’ve already seen some tangible things happening in the harbour area and it’s an interesting chance for Northern Ireland to regain some of that fine heavy engineering tradition.

The technology is there more or less but we’ve got to get joined-up thinking, move beyond the very positive political support that’s behind this, and make sure we get regulators and departments aligned.

Ronan-MacNioclais-action-4 Ronan MacNioclais

Who’s going to pay for this and how will that drive future outlook? Is it going to be tax-payers? Are we going to give incentives to invest in offshore wind or are we going to let it flow through to customers? Or, is it going to be a mix of both?

As we know, offshore wind is more expensive than other sources of renewable energy. We have the political will to move it along, particularly in Ireland and the UK, but the thing that needs a bit more thought is the financing arrangements. Currently, the certainty that is needed in those finance arrangements is deficient.

Garrett Blaney

From a regulatory perspective a key question is what is the cost to the consumer? Does the cost of electricity rise or fall with the increase in the amount of renewable energy and by how much? The answer to that lies in a further question: what’s the alternative cost? The alternative cost is fossil fuels. What’s the cost of fossil fuels into the future? That’s a broad debate. Generally, history has shown that people aren’t good at predicating the price of fossil fuels.

We need to take a risk-averse approach from a consumer point of view and be aware that the consumer will be significantly exposed if there is a rise in fossil fuel prices.

Ultimately the decision on the level of renewable support is a policy matter for government rather than a regulatory decision.

It is important that regulators don’t frustrate government policy but try to facilitate government renewable targets and remove barriers to renewables.

What are the main barriers associated with developing offshore wind?

Andy Kinsella

The cost of energy from offshore wind is a huge issue and it’s something that this industry will sink or swim on. If we can’t reduce the cost of energy from offshore wind, there will be no industry. I think there’s a real onus on the industry to get out there and sell itself in this respect. As an industry there is a message I don’t think we’re getting across.

The target in the UK, from the cost reduction taskforce, is £100 per MWh by 2020 and it’s achievable. In the UK, significant, detailed work has been done with government, the supply chain, the developers, the utilities and the financial industry. At £100 per MWh offshore wind its getting within the realms of being competitive with the more conventional technologies. There is clear evidence from Europe and the US that while capex and opex are important, the ‘value of wind’ must be also looked at in terms of the marginal cost of energy, portfolio risk reduction effects, oil and gas GDP effects and the broader stimulus to the economy.

Ronan MacNioclais

The scale of the financing required to bring these projects on stream is so large and the timetable is relatively short to 2020 that that is going to put huge strain on the existing sources of funds. I have doubt whether those existing sources of funds can actually meet the scale of investment.

Brian-Britton-Action-4 Brian Britton

The Offshore Wind Cost Reduction Taskforce summarised three key prerequisites needed to reduce cost. One is a constant project pipeline, secondly the increased supply chain capacity that leads to improved price competition, but fundamental in all of that is a supportive policy climate which would give the comfort to improve investor confidence. That is probably the biggest issue at the moment.

We are in a country that desperately needs employment, and offshore is the opportunity. The country does have to take an overall view. One-fifth of this country’s resources were put into Ardnacrusha, developed 85 years ago. Why don’t we make a similar bold move with our offshore resources today? We do have a tremendous resource in this country, we’ve ten times ocean to land and we should be trying to develop it, but we’ll have to do it first with our neighbours in the UK, and then with Europe.

What are the potential economic benefits for Ireland?

Andy Kinsella

We should look to the UK for an example of the benefits to an economy from a clear commitment to offshore renewable.

In May, the Centre for Economic and Business Research published a report on the value added of offshore to the UK. In terms of the potential economic benefits, three scenarios were reviewed: ‘slow progression’, ‘gone green’ and ‘accelerated growth’. Under ‘gone green’ (18GW by 2020 and approximately 35GW by 2030), the direct gross value added (GVA) for the UK is £2.3 billion per annum. When you take on the domestic impact multiplier that goes up by 2.3 times to £5.3 billion. There is also an additional multiplier, the so called foreign trade multiplier, which brings the multiplier to 2.5 due to energy imports reductions. This brings the GVA to £5.75 billion per annum.

The report says that under the accelerated scenario, by 2030, the GVA to the UK is £11.2 billion. There is nearly a one per cent uplift of UK GDP. UK exports in terms of energy, services and equipment increase by £22.5 billion, a level that nearly plugs the UK’s current trading deficit. There is the potential to create an additional 200,000 full-time jobs in the UK.

Garrett-Blaney-Action-6 Garrett Blaney

From a regulatory point of view our statutory obligation is to protect electricity consumers.

If an offshore facility in Ireland connected into GB then what’s the interest from an Irish electricity consumer point of view? There is a possible upside for the Irish consumer. Interconnectors are very expensive. We’ve an interconnector now coming onstream between Ireland and Wales next month and it’s going to add a major benefit to the system but there’s been a cost to the electricity consumer in their network costs to underpin and make that investment. The upside with future offshore facilities with direct lines into GB is that these lines could potentially connect back into the Irish system and be available to consumers as an interconnector without having to underpin the costs in network tariffs. This may not happen on ‘day one’ because of complications in current EU rules, but could happen as a ‘day two’ benefit.

What needs to be done to stimulate the supply chain to support the offshore wind industry?

Robert Wasson

A whole host of local suppliers today don’t even know that offshore is becoming a reality. The first step is to just inform them, make them understand what’s actually happening, and maybe get them to think about how it might be relevant to some of the things that they do.

PJ Rudden

There’s a huge public communications challenge here. I agree with everything Garrett said about costs and competitiveness for the end consumer but unless we have greater joined-up thinking, an integrated network that can export power but also act as interconnection, saving subsidy and maximising grid availability, it will never be done on single projects as successfully.

Brian Britton

We have to look at one or two projects kick-starting offshore immediately, otherwise we may have to wait to 2018, 2019 or 2020 for direct connection to happen. If we wait we will miss the boat as we did with onshore and lose out on the economic opportunity. The supply chain will not happen until Ireland puts the message out: we are open for business. Therefore we have got to bite this bullet and say we’re going to allocate maybe 600-1,000MW by way of statistical transfer to help stimulate the offshore industry and get projects moving now.

Andy Kinsella

Everything is driven by policy. If you get the policy right everything else will follow. The UK overtook Denmark in terms of offshore installed capacity about two years ago. Already in the UK, £12 billion has been committed to this industry with nearly 2GW of offshore wind in operation and over 2GW further in construction or has reached financial close. It’s happening because of the right policies, aligned with the right incentive mechanisms. If the right incentive mechanisms are there, capital flows and projects get built by the private sector. And when things get built, jobs get created and revenue flows to government.

What are the key issues for implementation of the ISLES study?

Garrett Blaney

Who is going to pay for all this infrastructure that’s going to be offshore? It is important that there is a clear understanding of the costs of offshore infrastructure, the sources of capital, and the mechanisms by which it will be paid for. It is likely that a significant proportion of these costs will land on the consumers’ bills, so there will need to be a clear cost-benefit to show any costs are warranted.

The key challenge on ISLES is, if it’s going to happen, it needs to be clear how it’s going to be funded and that the mechanisms for funding are clearly understood and agreed between the respective member states. Trying to get private sector funding and access capital markets for this is much more challenging than it has been in the past, and regulatory certainty can help reduce risk to projects. We need to start to think more collectively across Europe to provide that certainty.

PJ Rudden

I think there’s a considerable opportunity for the three governments that are participating in ISLES to leverage funding from Europe over the next year, if all the ‘ducks were in a row’ sufficiently in policy and regulatory terms. It’s possible that we could get into the next tranche of EU Cohesion funding, 2014-2020, which closes next March and that would kick-start and fuel the pump. The sovereign governments in Ireland and UK can get access to such funding for individual and defined projects. Let’s get behind this as a major national effort. It will transform the investment pipeline in terms of confidence building if the industry gets behind it with the continued support of our minister and the British-Irish Council’s energy work.

Michael-Walsh-Action-5 Michael Walsh

The findings from ISLES complement our own offshore grid study. This works better if it’s planned and designed so that these things have synergies between them rather than one-off developments.

It does all point to the last and single most important thing being getting the policy and overall framework right: so that you can give the developers and supply chain line of sight of what’s going to happen, make plans, develop it in an efficient way, have proper standards, and give open access so that the market rules can work.

Brian Britton

I think it’s time to be a bit controversial. Time may have passed the ISLES study by. At the time it was commissioned, it was a very worthwhile exercise. When you look at the way the ‘All-Islands Approach’ has developed and the type of direct connection that will facilitate exports, such as the energy bridge that Mainstream and Element have proposed and the direct connection by Codling, the ISLES study is looking at too tight a geographical area.

The Government is looking at Ireland-UK. Then we’re moving to France-UK-Ireland and then towards the supergrid idea. While ISLES was critical in building co-operation, expansion of its remit should be considered. It should be noted that the costs of direct connection are paid for by the developer with no cost to the consumer.

Robert Wasson

Planning is a big issue. There’s a lot of talk about planning being joined-up and strategic infrastructure and when you come to do it on the ground, it’s very difficult. When you come to put in place any significant infrastructure, people object.

It’s very hard to put timeframes on it as well and that leads to a degree of uncertainty around that enabler of offshore wind.

The technology is just about there. When you’re putting subsea cables in 200 metres of water though, and you’re having to deal with a fault, it’s just not the same thing as trying to fix the overhead line insulator on a hill that’s ten miles away. There needs to be enough redundancy to cope with that.

What is the single most important issue for the development of offshore wind in Ireland?

Garrett Blaney

The key issue for offshore wind as an export opportunity is clarity around Electricity Market Reform (EMR) in GB and how Irish projects will be treated within that. Beyond the near term objective the debate has to start now in Europe as to what’s the best way to achieve a post-2020 policy direction that can be shown to deliver a least cost solution for consumers across Europe.

Ronan MacNioclais

Time or speed. The UK has its generation gap. They’ve thought about how they will fill that generation gap. We want to be part of their solution but that generation gap isn’t infinite. It will get filled and if Ireland isn’t seen to be able to fill it over a period of time, the process will have moved on and they will solve it some other way. If we don’t get our act together relatively quickly, they will have found other solutions.

Robert-Wasson-action-2 Robert Wasson

You need alignment of policy around energy regulation, planning, environmental and industrial policy and regional development. I agree with Garrett’s efficiency argument that it needs to be driven from an EU perspective.

Brian Britton

The next step is an inter-governmental agreement between Ireland and the UK to facilitate development of the offshore industry here. That will then enable the market mechanisms to be put in place. This is important to stimulate the industry. The mechanism has to ensure a market price giving an internal rate of return sufficient to enable Irish projects get financed and built. We’re competing with other countries.

PJ Rudden

Policy and continued leadership from government. Joined-up thinking between the regulators is essential also. The support is there but it needs to be communicated better to citizens to keep it on the political agenda.

Michael Walsh

We need to look at a systems approach rather than looking at each of these things individually. Given the scale of ambition and the challenges, unless there’s a proper systemic approach, it is going to be incredibly difficult to deliver this. If one thing goes wrong for a project, such as you don’t get the support expected for a project then the project can’t proceed.

Andy-Kinsella-Action-6 Andy Kinsella

I sit on the Renewable Industry Advisory Board at the IEA in Paris. This board was set up at the request of the G20 countries to input, with regard to renewable energy, in relation to global energy policy. Renewables are viewed as a regional resource in Europe. A European single electricity market and harmonisation of incentives are fully supported. EU Energy Commissioner Günther Oettinger is strongly supportive of any project that sees the interconnection of markets within Europe.

But getting the EU to act in unison to deliver renewable energy as an EU resource in a single energy market is a significant challenge. A point Oettinger made in relation to new renewable targets for 2030 was: “I have 27 countries to deal with. It is hard to sell more renewable targets when France is 80 per cent nuclear and Poland is 90 per cent coal.” It is going to take a tremendous effort to deliver a European single electricity market and harmonisation of incentive. The proposed co-operation between Ireland and the UK whereby renewable energy at scale will be exported directly to the UK is an opportunity for Ireland to show leadership in Europe. The Government must move this Ireland UK policy initiative forward as a matter of urgency. But even if the Government gets policy right in Ireland, EMR in the UK must deliver the requisite revenue streams post-2017, and I believe it will, to let the private sector deliver the infrastructure needed.

The participants

Andy Kinsella

Andy Kinsella is a Director of Mainstream Renewable Power. As CEO, Offshore, he has responsibility for Mainstream’s offshore markets globally, including 8GW of developments in the North Sea. He is a member of the Renewable Industry Advisory Board of the IEA, Paris. He has over 27 years experience in the global electricity sector in senior management positions with ESB, ESBI, Siemens and GE.

Garrett Blaney

Garrett Blaney has been a member of the Commission for Energy Regulation since February 2010. Garrett’s lead responsibilities relate to the regulation of gas and electricity safety, gas networks/LNG and gas markets, including the Common Arrangements for Gas (CAG) project, fuel disclosure and the Public Service Obligation (PSO) levy. Previously, Garrett worked at Viridian Power and Energy and ESB International.

Brian Britton

Brian Britton is Managing Director of Oriel Windfarm Limited. Completion of the Oriel Windfarm will see 330MW of renewable energy delivered into the Irish grid. Brian has managed this €990 million project from inception. He is a founder and General Secretary of the National Offshore Wind Energy Association of Ireland (NOW Ireland).

Ronan MacNioclais

Ronan MacNioclais leads PwC’s Energy, Renewables and Utilities group. He also specialises in mergers and acquisitions. As a tax adviser to some of Ireland’s largest energy and renewable operations, Ronan has an in-depth knowledge of industry issues and uses his mergers and acquisitions expertise to advise acquirers and targets.

PJ Rudden

PJ Rudden is Group Infrastructure Business Director for RPS in Ireland, Northern Ireland and Great Britain. He has over 25 years experience of the Irish energy business, and is Project Director for the Irish-Scottish Links Energy Study (ISLES) on offshore renewables (wind, wave and tidal) for the Scotland, Ireland and Northern Ireland governments. He is President of Engineers Ireland (2011-2013) and a member of the IBEC-CBI (North/South) Joint Business Council.

Michael Walsh

Michael Walsh has been EirGrid’s Director of Corporate Affairs and Strategy since September 2011. Prior to this, Michael was Chief Executive of the Irish Wind Energy Association. Previous roles include manager of market development at EirGrid and lecturer in electronic engineering at UCD. Michael was a European Wind Energy Association board member (2008-2011). He is a fellow of Engineers Ireland.

Robert Wasson

Robert Wasson was appointed Asset Management Director at Northern Ireland Electricity (NIE) in 2011. He led the transition process after the acquisition of NIE by ESB in 2010. An electrical and electronic engineering graduate of Queen’s University Belfast, Robert previously worked at ESB and ESB International. In 1999, Robert moved to consulting, where he led KPMG’s organisational review practice in Ireland.