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Offshore Wind Journal

Sector deal could help UK carve out massive export opportunity

Tue 08 May 2018

Sector deal could help UK carve out massive export opportunity
A sector deal for offshore wind can create investment, jobs, clean growth and export opportunities

The offshore wind industry in the UK has submitted initial proposals to the government for a sector deal. But what is a sector deal, and what will it do for the industry if it gets one? To answer these questions, OWJ heard from several industry leaders

The UK’s Industrial Strategy set out sector deals as a new concept. Under this approach, instead of the government researching and prioritising which industries to support, sectors have been asked to come together and set out their ambition to win, on their own terms. The concept builds on a successful one used in the automotive and aerospace industries.  

Sector deals are being negotiated for more than 60 different industries in the UK. Not every industry will get a deal, or get the deal it believes it deserves, but for the offshore wind industry a sector deal is coming at just the right time, industry leaders told OWJ.

This is because the industry is at a point where it has shrugged-off the idea that it is niche and has instead become mainstream. Concerns about cost and the level of subsidies required to build offshore windfarms have now receded far into the rear-view mirror.

In the words of Department for Business, Energy & Industrial Strategy (BEIS) head of renewables supply chain Allan Taylor, speaking at the 2018 All-Energy conference in Glasgow in early May, the UK Government’s Industrial Strategy, of which sector deals are a key part, “has come just at the right time for offshore wind.” Offshore wind, said Mr Taylor, sits at the heart of the government’s Clean Growth strategy, and can play a key role in developing infrastructure, creating jobs and boosting exports.   

The offshore wind sector’s engagement with the government and negotiation of a sector deal is being led by Baroness Brown of Cambridge, Professor Dame Julia King, who is the UK’s Low Carbon Business ambassador and vice chair of the Committee on Climate Change.

Speaking at the time that she was appointed, Baroness Brown said “The challenge for the offshore wind industry and government is to ensure that we capitalise on our world-leading position in a highly competitive, global market and deliver on the huge potential for jobs, new infrastructure, exports and economic growth. This will also allow us to continue to achieve significant cost reductions, helping energy consumers.

“With an ambitious sector deal we can take the next transformative steps together, enabling the offshore wind industry to help government to achieve its clean growth ambitions in a way that boosts productivity and growth throughout the UK.”

Speaking exclusively to OWJ, UK country manager for Ørsted and Offshore Wind Industry Council co-chair Benj Sykes said the industry is working together as a sector to partner with the UK Government and deliver an ambitious vision for the future of offshore wind. “This deal comes at the right time for the offshore wind sector; we have grown rapidly and reduced costs much faster than anticipated,” he said.

“The sector is now at a critical turning point and must seize this opportunity to reach its full potential with a transformative deal. Our proposals show how the innovative offshore wind industry can drive economic growth throughout the UK, attracting billions in investment, driving growth in coastal communities which need new opportunities, whilst generating affordable and clean energy.”

Mr Sykes explained that the sector is offering to make several new commitments from the industry to support the objectives of the government’s Industrial Strategy; prioritising innovation, creating new business opportunities, generating high-quality jobs, helping communities to prosper and upgrading UK infrastructure.

If the offshore wind industry gets a sector deal, and the right kind of deal, the rewards could be immense. The right kind of deal could propel the roll-out of new offshore wind capacity in the UK, create billions of pounds of export opportunities and create thousands of jobs. In the right circumstances there could be a near tripling of employment in the industry in the next decade or so. Government has long focused on UK content for domestic windfarms – and this remains an issue and a challenge – but the right kind of sector deal could see the industry focusing not so much on UK content for UK windfarms, but on capturing as large a slice as possible of what is becoming a global market.

One scenario developed by the industry could see the UK with an offshore wind industry directly employing 27,000 people in 2030, with 30 GW of offshore wind capacity and £2.6Bn (US$3.5Bn) in exports. By 2050 these figures could rise to 39,000 people directly employed, 50 GW of offshore wind capacity and £5.1Bn in exports.

Some industry observers expressed concern earlier this year when offshore wind was not among an initial tranche of sector deals announced by the government, but Mr Sykes told OWJ that the process is still at a relatively early stage. “We spent several months developing ideas,” he explained, “and have submitted ideas to government and are awaiting feedback.” It is possible, he said, that there might be an announcement by the parliamentary recess in the UK in July, but that is not set in stone.

Asked what a sector deal is and what the offshore wind industry might get from it, Mr Sykes said “It’s all about driving productivity in industry as a whole in the UK and for the offshore wind industry in particular there are a number of goals.”

Among those goals are gaining the largest possible share of the fast-growing export market and developing the UK market to the fullest possible extent, reinforcing and enhancing the supply chain in the UK, focusing on innovation and technology development, and creating jobs, particularly in parts of the country such as coastal areas that have been in decline for several years.

In addition to transforming coastal communities through the creation of ‘clusters’ of excellence, training, skills and ‘upskilling’ is another part of the sector deal puzzle. So too is diversity. All of these sit within another, overarching goal, of infrastructure development in the UK and the government’s clean growth policy.   

To help the offshore wind industry do the above, what it most wants from a sector deal is policy that will enable it to develop and do so quickly. What the industry is therefore asking for is the greatest possible level of visibility about the likely level of offshore wind construction in the coming years. Ideally, Mr Sykes and his colleagues want the government to commit to dates for the next three auctions for offshore wind capacity in the UK.  That would give the industry a ‘runway’ for investment that would put it in pole position to take advantage of export opportunities.

The UK already leads the world in the development of offshore wind – not least because of the large cost reduction that the industry has achieved. But that reduction has placed large strains on the supply chain, industry leaders told OWJ. Competition is intense, particularly in the lower tiers of the supply chain. It is essential that the way the industry continues to grow is sustainable for everyone in the supply chain, Mr Sykes said.

Another issue that a sector deal could help to address is maintaining a balance between collaboration and competition. Much cost reduction has come about because of collaboration but the auction process for offshore wind has dramatically enhanced competition. “What we would really like to see is a sector deal with a structure that will enable collaboration to continue and to flourish,” Mr Sykes said.

Offshore Renewable Energy Catapult chief executive Andrew Jamieson agreed with Mr Sykes. “Competition in the marketplace is becoming a very big issue,” he said. “Competition is healthy, but we will also continue to need to collaborate on common issues. Doing so, and how we do so, will be critical. We have to decide in which areas we need to collaborate and create an environment that can facilitate collaboration, vertically and horizontally within the supply chain.”

Iberdrola Renewables Offshore managing director Jonathan Cole agreed. “The landscape has changed a great deal in the last 24 months,” he said. “We have gone from collaboration to intense competition. The sector deal can provide a framework that can help ensure that there are still avenues for collaboration for the greater good, in terms of what is best for UK Plc.”

Low prices brought about because of the impressive cost reduction in the industry can cause problems for some supply chain companies who already find it difficult to compete on cost with companies outside the UK, OWJ’s industry experts agreed. So, it is essential to find ways to keep the supply chain sustainable as it goes for growth.

“We’ve seen cost reduction in the order of 60% in the last few years,” said Mr Cole. “We have to ensure that we don’t squeeze the bottom of the supply chain too much. We need to allow companies in the lower tiers to catch up.”

The Crown Estate director, energy, minerals and infrastructure, Huub den Rooijen, said the industry also needs to put the dash for development into a wide perspective in which the development of offshore windfarms in the North Sea and other areas goes ahead at a fast pace, but in a sustainable manner that considers other users of ocean resources and the environment.

“Offshore wind is already a success story,” he said. “It can be an absolutely huge success story in the long run, but we need to take into account the needs of other sectors, and the sector deal can help provide an environment that can help us do that.”

Friends of floaters want a deal of their own

An industry group focusing on the fast-growing floating offshore wind market says the UK needs to set ambitious targets for floaters and believes the sector deserves its own sector deal with the government.

The Friends of Floating Offshore Wind, a representative group of companies with an interest in developing the floating offshore wind market, have released a position paper The Future’s Floating, requesting discussions on a sector deal with the UK Government based on socio-economic impact calculations. The companies have called for a commitment to target 1 GW of floating offshore wind in development and realisation by 2025 and 5 GW by 2030.

The group has also requested discussions around a sector deal that offers support for the technology, either separately or as part of the wider offshore wind sector deal, to determine how the route to this market can be facilitated at the least cost for tax and bill payers.

Friends of Floating Offshore Wind chairman, Chris McConville said “Our position paper makes a compelling case for supporting floating offshore wind with a route to market in the UK. The technology ticks all the boxes of the Industrial Strategy and aligns with the vision for a transformed economy. Not making use of this opportunity would mean leaving the benefits of this promising industry to other nations, a mistake we can’t afford to make again.”

“Floating offshore wind is on the pathway to become commercially competitive with other forms of electricity generation and has the potential to further reduce the generation cost of offshore wind, particularly in deep water and challenging seabed sites,” said the body.

“This creates a new market with the associated supply chain, employment and export opportunities from which first movers and those with experience in related fields such as offshore oil and gas or maritime will benefit most.

“Calculations of the local gross value added (GVA) underpin that the GVA returns justify the investment in supporting pilot and particularly precommercial arrays, where the GVA exceeds the cost of support. The support of these projects would also offer local employment and the development of local supply chains for export markets, especially in deprived areas or where the transition and diversification from offshore oil and gas is needed the most.”

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