Looking Beyond Cost Reduction

It is achievable. The offshore industry can reach a cost base of £100/MWh by 2020. That at least is the conclusion of the Offshore Wind Cost Reduction Task Force (CRTF), a body set up at Government request to investigate realistic cost cutting in the offshore wind industry.

The premise of the CRTF’s establishment was laid out in the Government’s Renewable Energy Roadmap of 2011: If the industry is to fulfill its ambition of 18GW of offshore capacity by 2020, then the costs simply have to come down.

The subtext was clearly that unless the industry could start cutting costs, the supporting subsidy regime would be increasingly hard to deliver.

The political arguments for supporting an environmentally and socially sound industry regardless of up front costs is a debate for another time, but the pressure being applied is obviously substantial, particularly given that cost reduction dominates industry debates and conferences – such as this week’sRenewableUK Global Offshore event.

Whilst the industry has little choice but to pursue cost reduction, there is an argument to say that given that 2020 targets are to be delivered over the next eight years, the sector will eventually start to see, in the words of economists, falling long run average total costs.

Like any other industry this will be achieved through bulk purchasing, economies of scale and increased sector experience.

The report from CRTF, though, is largely promising. It suggests a raft of measures to address problems with contracting, supply chain, planning, connectivity and stakeholder coordination.

And it's addressing the second of those issues, the suppy chain, that is really the hardest battle.

On the one hand, the industry needs more firms involved competing to supply goods and services. Conversely, offshore wind is a large technical challenge, which requires experienced firms with good track records. And it’s the experienced firms who are more likely to be able to help lower costs.

If anything, though, there’s more of a risk of the industry allowing cost reduction to become a millstone around its neck. Making it an all-encompassing aim, can put pressure on other areas, or lead to a belief that the sector needs to re-invent the wheel.

And that’s not the case. Faced with a similar predicament in the 1980s, the offshore oil and gas sector established CRINE – an acronym that stood for Cost Reduction In Next Era.

Initiatives under the CRINE umbrella resulted in the industry achieving a 30% cost reduction. Crucial to the success of this program was improving competitiveness without compromising standards.

Most offshore wind businesses seem confident that costs will fall, and naturally have their own interest at heart in being more efficient. But cost reduction shouldn’t become the only thing that’s ever talked about in offshore wind. In an age of austerity and bleak economic outlook, the industry has more to offer.

It is achievable. The offshore industry can reach a cost base of £100/MWh by 2020. That at least is the conclusion of the Offshore Wind Cost Reduction Task Force (CRTF), a body set up at Government request to investigate realistic cost cutting in the offshore wind industry.

The premise of the CRTF’s establishment was laid out in the Government’s Renewable Energy Roadmap of 2011: If the industry is to fulfill its ambition of 18GW of offshore capacity by 2020, then the costs simply have to come down.

The subtext was clearly that unless the industry could start cutting costs, the supporting subsidy regime would be increasingly hard to deliver.

The political arguments for supporting an environmentally and socially sound industry regardless of up front costs is a debate for another time, but the pressure being applied is obviously substantial, particularly given that cost reduction dominates industry debates and conferences – such as this week’sRenewableUK Global Offshore event.

Whilst the industry has little choice but to pursue cost reduction, there is an argument to say that given that 2020 targets are to be delivered over the next eight years, the sector will eventually start to see, in the words of economists, falling long run average total costs.

Like any other industry this will be achieved through bulk purchasing, economies of scale and increased sector experience.

The report from CRTF, though, is largely promising. It suggests a raft of measures to address problems with contracting, supply chain, planning, connectivity and stakeholder coordination.

And it's addressing the second of those issues, the suppy chain, that is really the hardest battle.

On the one hand, the industry needs more firms involved competing to supply goods and services. Conversely, offshore wind is a large technical challenge, which requires experienced firms with good track records. And it’s the experienced firms who are more likely to be able to help lower costs.

If anything, though, there’s more of a risk of the industry allowing cost reduction to become a millstone around its neck. Making it an all-encompassing aim, can put pressure on other areas, or lead to a belief that the sector needs to re-invent the wheel.

And that’s not the case. Faced with a similar predicament in the 1980s, the offshore oil and gas sector established CRINE – an acronym that stood for Cost Reduction In Next Era.

Initiatives under the CRINE umbrella resulted in the industry achieving a 30% cost reduction. Crucial to the success of this program was improving competitiveness without compromising standards.

Most offshore wind businesses seem confident that costs will fall, and naturally have their own interest at heart in being more efficient. But cost reduction shouldn’t become the only thing that’s ever talked about in offshore wind. In an age of austerity and bleak economic outlook, the industry has more to offer.

It is achievable. The offshore industry can reach a cost base of £100/MWh by 2020. That at least is the conclusion of the Offshore Wind Cost Reduction Task Force (CRTF), a body set up at Government request to investigate realistic cost cutting in the offshore wind industry.

The premise of the CRTF’s establishment was laid out in the Government’s Renewable Energy Roadmap of 2011: If the industry is to fulfill its ambition of 18GW of offshore capacity by 2020, then the costs simply have to come down.

The subtext was clearly that unless the industry could start cutting costs, the supporting subsidy regime would be increasingly hard to deliver.

The political arguments for supporting an environmentally and socially sound industry regardless of up front costs is a debate for another time, but the pressure being applied is obviously substantial, particularly given that cost reduction dominates industry debates and conferences – such as this week’sRenewableUK Global Offshore event.

Whilst the industry has little choice but to pursue cost reduction, there is an argument to say that given that 2020 targets are to be delivered over the next eight years, the sector will eventually start to see, in the words of economists, falling long run average total costs.

Like any other industry this will be achieved through bulk purchasing, economies of scale and increased sector experience.

The report from CRTF, though, is largely promising. It suggests a raft of measures to address problems with contracting, supply chain, planning, connectivity and stakeholder coordination.

And it's addressing the second of those issues, the suppy chain, that is really the hardest battle.

On the one hand, the industry needs more firms involved competing to supply goods and services. Conversely, offshore wind is a large technical challenge, which requires experienced firms with good track records. And it’s the experienced firms who are more likely to be able to help lower costs.

If anything, though, there’s more of a risk of the industry allowing cost reduction to become a millstone around its neck. Making it an all-encompassing aim, can put pressure on other areas, or lead to a belief that the sector needs to re-invent the wheel.

And that’s not the case. Faced with a similar predicament in the 1980s, the offshore oil and gas sector established CRINE – an acronym that stood for Cost Reduction In Next Era.

Initiatives under the CRINE umbrella resulted in the industry achieving a 30% cost reduction. Crucial to the success of this program was improving competitiveness without compromising standards.

Most offshore wind businesses seem confident that costs will fall, and naturally have their own interest at heart in being more efficient. But cost reduction shouldn’t become the only thing that’s ever talked about in offshore wind. In an age of austerity and bleak economic outlook, the industry has more to offer.