The first steps were modest. Blyth, a pilot project in Northumberland, became the UK's first offshore wind installation when its two Vestas 2MW turbines started generating electricity in 2000. A year earlier, the trade body representing the embryonic wind energy industry at the time, the British Wind Energy Association, had initiated discussions with the government on guidelines for negotiating use of the seabed with the Crown Estate, the independent body that owns almost all the waters up to 22.2 kilometres from the UK coastline.
The resulting process for site allocation and leasing from the Crown Estate began in December 2000 and attracted an enthusiastic response from developers. With potential sites announced in April the following year, the stage was set for the push into the sea in the form of the 18 so-called Round 1 projects.
Soon after the start of Round 1, a series of capital grants for offshore wind farms was announced via the new opportunities fund. This gave consented projects up to £10 million (EUR12 million) each, representing around 10% of the project costs. By 2006, five operational wind farms were generating electricity in UK waters - Blyth, North Hoyle, Scroby Sands, Kentish Flats and Barrow, totalling 304MW. Round 1, when completed, added up to 1.3GW capacity.
Strategic framework
In 2003 the government concluded its Future Offshore Consultation to develop a strategic framework for the industry, which included the establishment of strategic environmental assessments (SEAs) and the need for the required transmission infrastructure. This led directly to the next phase of development, Round 2. The same year, the Crown Estate asked for expressions of interest and 29 companies registered interest in 70 locations comprising more than 20GW of generation.
Today, Round 2 is well under way, with three completed, operational wind farms and five under construction. A further three projects are consented and seven are still going through the permitting process. All this adds up to 9.6GW. Round 2 projects include Thanet in the Thames estuary, at 300MW the largest offshore wind farm currently operating in the world, and the 1GW London Array, set to take over as the world's largest offshore wind farm when completed in 2015.
The then Labour government's 2004 Energy Act was also "pro-wind" and created a legal framework for development outside UK territorial waters. The goal was to put Britain in the lead in addressing climate change and CO2 emissions and to begin to reduce reliance on imported fossil fuels as oil and gas reserves in the North Sea began to decline.
Now the industry is ratcheting up development with Round 3. These projects are a magnitude larger again and with Scottish territorial waters projects amount to a project pipeline of 40GW. The nine Round 3 zones allocated are in the Moray Firth, Firth of Forth, Hornsea, Dogger Bank, East Anglia, Hastings, West Isle of Wight, Bristol Channel and Irish Sea. UK Round 3 has a potential generating capacity of 32.2GW.
The key landmark date is 2020, when European obligations on carbon emissions, energy efficiency and renewables generation come into force. At the current rate, the UK should have 18GW of offshore wind generating by that date - around 17% of the UK's electricity needs, compared with just under 2% today.
So progress to date in the seas around the UK has been rapid, sustained by a political desire to embrace the carbon-emissions agenda and security of supply. The latter has been pushed up the agenda by the imminent closure of a number of coal-fired power stations to comply with European emissions regulations and the looming obsolescence of most of the country's nuclear plant.
With this political will has come a series of helpful financial mechanisms - such as the renewable obligation that requires electricity retailers to source a proportion of their power from renewables by buying renewables obligation certificates - which have facilitated what is an expensive and difficult-to-build form of electricity generation. Practical considerations have helped too, inclucing the decades of experience built up in the hostile waters of the North Sea through the oil and gas sector.
So what might derail this march towards projects such as the giant Dogger Bank generating large-scale electricity by 2020? Perhaps the biggest challenge is making offshore competitive in terms of cost with other generation technologies, particularly low-carbon nuclear power. Offshore wind costs around £150/MWh, and the current UK coalition government at the end of 2011 convened an offshore wind cost reduction task force with a target of £100/MWh, to compete with nuclear, which costs £97/MWh (see page 10).
Innovative finance
Bringing costs down will make the industry more attractive to investors, although financing challenges will remain as wind moves further offshore into deeper, more hostile waters. More innovative forms of financing and ownership involving project finance and consortia could be the way forward, as is being shown in Germany. Farook Khan, partner at international law firm Pinsent Masons believes that equity and sovereign wealth funds could be the answer. "The sheer demand for capital means funding is more constrained and is going to have to come from new equity sponsors," he says, but warns that "developers will have to accept a lower rate of return".
Technology must play its part too. Far-shore wind farms need to be bigger, but also more robust and reliable as they face extreme conditions and are harder to access when they go wrong. The supply chain and logistics could also stunt offshore growth. Without sufficient cables, ships and foundations, projects cannot be built and connected. Competition for the limited supply from other growing markets such as Germany, with stronger manufacturing bases, could pose a threat.
Political will is key to the UK continuing to exploit its wind assets. Far-shore Round 3 will present challenges as different to Round 1 as Round 1 did to onshore. As offshore insurance and risk specialist Jatin Sharma of GCube puts it: "Describing the UK today as a mature offshore wind market is only partly true. It is about to become innovative again with Round 3 as it's further, deeper and bigger. Added to that, most of the UK's own supply chain market was lost in Round 2."
THE OFFSHORE PIONEER HOW DENMARK INTEGRATED OFFSHORE WIND INTO ITS ENERGY MIX
Denmark, already a pioneer in onshore wind, was also a first mover in the offshore sector and today its market is the second-biggest after the UK, and ahead of Germany and the Netherlands.
As a small country with relatively modest wind resources, offshore wind was attractive early on, given the advantage of relatively shallow waters and greater wind resource in the eastern North Sea, Skagerrak waterway and the western Baltic.
The government was one of the first to provide financial incentives to develop renewable energy, first in the form of a grant for 30% of initial costs, and latterly through a feed-in tariff (FIT). So encouraged, Denmark went on to build the world's first offshore wind farm in 1991, Dong's 5MW 11-turbine Vindeby project, sited 1.5 kilometres from shore.
Connectivity advantage
A key advantage to integrating offshore wind into Denmark's energy mix as the sector has developed has been the connectivity of the country to neighbouring Germany, Norway and Sweden. Connection to the latter two countries via the Cross-Skagerrak link means Denmark's offshore wind generation can be balanced with Scandinavia's hydropower output. Denmark therefore has no need for non-renewable balancing projects to deal with periods of low wind, and can export wind to be stored in hydro-pump storage when excess power is generated.
Denmark's early-mover status means it has been able to create a robust offshore supply chain, which has led to it being home to offshore turbine pioneers such as Vestas.
Danish waters currently host 12 offshore wind farms, the largest being Dong's 209MW 91-turbine Horns Rev II, 30 kilometres off Jutland. Development offshore continues, with Denmark's biggest project to date - Dong's 400MW Anholt project, due to come on stream in 2013, when it will generate 4% of the country's electricity. Wind onand offshore now accounts for 24% the country's generation capacity.
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