The offshore wind supply chain rather than UK billpayers is likely to end up paying any price of the intense new competition in the sector from oil & gas groups, according to a senior executive for energy consultancy K2 Management who said the overall impact of fossil giants is still to be determined.
The success of BP and Total in the UK’s Round 4 leasing auction marked the arrival of ‘big oil’ in the world’s largest offshore wind market, sparking an intense debate over the impact of the supermajors’ deep pockets on the process as some claimed aggressive bidding by consortia could push up costs in the sector after a decade of decline.
However, Bills, K2’s regional director for EMEA, said fears that offshore wind’s overall competitiveness could be damaged may be wide of the mark.
“I don’t think we’ll see an increase in the end user price of electricity,” Bills told Recharge in an interview.
“I do think we’ll see a squeeze in the middleman. When [developers] are looking to find savings, they’ll be going to turbine, foundation and cable, manufacturers, and shipping. Those guys will be squeezed, no question about that.”
Bills also pointed to further cost reductions likely to be achieved in the industry over the next five-to-eight years while the Round 4 projects are built as reason to believe that offshore wind can stay competitive.
“By the time these are developed… everyone will be looking at turbines of 18MW, potentially even bigger.”
Bills said UK Round 4 is an early sign of an oil & gas presence in offshore wind that is only going to grow, pointing out that only a handful of the world’s largest players have joined the sector so far.
“Everywhere you go now you’re going to find oil majors. There’s a lot of money to arrive yet,” he said, adding that the full tally of positives and negatives of the growing fossil presence is yet to be determined.
While some smaller developers may be forced into new markets, the heft of the oil groups will help the sector reach scale.
“They can definitely make [projects] more investable because of who they are,” said Bills, adding that offshore wind “can learn a lot” from oil & gas in areas like health and safety.
The engineering expertise of the fossil sector may “help make some big improvements in how quickly these projects can be realised”, while the financial clout of big oil could also see the offshore wind sector having to rely less in the future on mechanisms such as contract-for-difference (CfD) support, Bills suggested.
“The lending community likes CfDs because of the [visibility] they bring to projects. But if you move forward into the oil majors they’re not as concerned about the lending community,” said Bills. “The CfD isn’t as critical,” allowing projects to look at other options such as merchant exposure and corporate power deals.