Offshore wind project costs decrease with bespoke vessels and lower oil & gas activity

The rising number of purpose-built offshore wind vessels has a direct impact on the costs of offshore wind projects, as the sector is getting more room to use its own fleet instead of deploying vessels from the oil & gas industry, which can be costly if high oil price is driving increased oil & gas activity.

With foundation and wind turbine installation costs accounting for around 10 per cent of the total capex and 7 per cent of the Levelized Cost of Energy (LCOE), the vessels used significantly affect an offshore wind farm’s cost.

At the time when offshore wind was still emerging, installation and support vessels that were being deployed to build offshore wind farms almost exclusively came from the oil & gas sector, driving up project costs with competition between the two sectors, with vessel availability increasing their price and leading to project delays which bear additional costs on their own.

“Offshore wind developers from 2003 to 2009 were hiring existing general-purpose jack-ups or modified vessels for turbine installation, and (heavy lift) crane vessels for the installation of foundation structures usually from the oil and gas industry, creating competition between the sectors. This led to a lack of availability of suitable vessels and costly delays especially in the installation phase. There was clear evidence at that time that increased oil and gas activity, driven by high oil prices, had a direct impact on the cost of offshore wind projects”, Angeliki Spyroudi, a Senior Strategy Analyst at Offshore Renewable Energy (ORE) Catapult, states in a recently published report on oil price impact on offshore wind projects.

While this is still not completely out of the picture, project costs are now being increasingly driven by the construction of offshore wind vessels, according to the report, lowering the direct competition with the oil & gas sector.

In the report, Angeliki Spyroudi pointed out that the first dedicated offshore wind installation vessel, capable of installing both foundations and turbines, entered service in 2003.

Since then, a lot has changed as the offshore wind sector has grown and so have the wind farm components and projects’ distance to shore, requiring larger vessels with bigger lifting capacity and more advanced ships for operation and maintenance.

Ship operators and shipbuilders have been responding to the industry’s demand, in an effort to catch up with large-scale projects becoming even larger. Only in the past few months, several new installation and service operation vessels (SOVs) were announced or delivered.

At the end of August, Ocean Installer and Vard informed they will develop a vessel that will be able to install offshore wind turbines of more than 1,000 tonnes in weight at a height of over 150 meters above sea level.

Jan De Nul’s mega jack-up installation vessel Voltaire, currently under construction and set to enter service in 2022, has already been chosen to install 12 MW turbines at the Dogger Bank A and Dogger Bank B project in the UK. Voltaire will have a lifting capacity of more than 3,000 tonnes and will be 325 metres tall with its legs fully extended and the crane at full height.

Furthermore, CSBC-DEME Wind Engineering (CDWE) is working on its floating heavy-lift installation vessel Green Jade, the first Taiwan-built offshore wind installation vessel, which will be delivered in 2022. Green Jade will have a 4,000-tonne capacity crane and large deck space for transporting and installing multiple foundations and wind turbines in a single shipment.

In June, Ulstein Verft delivered the Windea Jules Verne SOV to Bernhard Schulte Offshore, a 93.4-metre hybrid vessel that can accommodate up to 120 people. The SOV has been chartered by GE Renewable Energy for the German Merkur offshore wind farm.

Two months earlier, Ørsted signed a 15-year charter contract with Ta San Shang Marine for the first Taiwan-flagged SOV, which will be deployed for operation and maintenance (O&M) at the developer’s Greater Changhua offshore wind farms once delivered in 2022.

Also, Esvagt is delivering three SOVs of the Havyard 831 L SOV design for service at the Borssele III and IV offshore wind farm in the Netherlands, the Triton Knoll wind farm offshore England, and the Moray East wind farm off Scotland.

Nevertheless, with the size of foundations and wind turbines increasing, and projects moving farther from coastlines, developers still face a limited supply of vessels, according to the report from ORE Catapult.

“In 2015, the European offshore wind industry had a fleet of 75 vessels but almost half of the jack-up vessels in use were not capable of installing the 8-MW turbines planned in deeper waters and more frequent adverse weather conditions”, Angeliki Spyroudi writes in the report.

And while the number of offshore wind newbuilds has been significantly increasing over the past few years, demand for third generation vessels will continue to rise after 2020, according to the report, with the continuous upscaling of wind turbines and foundations.

“ORE Catapult’s internal analysis forecasts that the global offshore wind turbine installed capacity will be further expanded with a compound annual growth rate (CAGR) of 17% from 2019 to 2030”.

The connection with the oil & gas sector and its impact on project costs will stay if there is not enough investment in new offshore wind vessels, especially when next-generation vessels are required.

The extent and rate of building novel installation vessels will continue to affect offshore wind project costs.

“The introduction of more new installation vessels will increase supply competition and is likely to reduce the charter rate of vessels for the offshore wind industry, but offshore wind installation costs may well increase if there is insufficient investment in new bespoke vessels able to serve the industry when this is required”, the report says.

When it comes to offshore support vessels, there is a similar competition-based impact, with some of the offshore wind heavy lift jack-up vessels also working in the oil & gas sector, where the demand will be increased when the oil price starts to recover.

The report also states that the increasing deployment of floating wind could also trigger a new competition for vessels with oil & gas. This is due to similarity of floating platforms’ design in both sectors, with the vessels used to install floating wind platforms and offshore support vessels such as AHTS and tugs being alike. However, here floating wind provides a “natural market” for the existing vessels during lower oil & gas activity.

Regarding SOVs and crew transfer vessels (CTVs), the rise in building bespoke vessels of these kinds is well on the path to loosen the connection to oil & gas.

“Some vessels traditionally used in oil and gas like PSVs and multipurpose support vessels (MSVs) were converted into accommodation vessels for technicians in the past, but this practice does not look set to continue as offshore wind requires specific vessel sea-keeping characteristics that suit the walk-to-work system”.

With the offshore wind sector moving forward and setting the pace for shipbuilding in the area of O&M vessels, the impact of oil price volatility will be reduced from this perspective as well.