Iberdrola: A Spanish giant succeeding offshore

OW12_spread.jpg 6 1A few months ago Spanish energy giant Iberdrola was crowned the world’s largest wind energy developer with an operating portfolio of more than 14,000MW. The promotion of offshore wind energy is a key platform for Iberdrola’s future growth plans. Iberdrola’s Offshore Business Division, based in Scotland with offices in London, Berlin and Paris, is busy developing its offshore wind project pipeline of more than 11,000MW across Europe.

Offshore WIND asks Jonathan Cole, Managing Director Global Offshore Wind at Iberdrola, if the offshore sector is living up to Iberdrola’s expectations and where the company sees its offshore future. While the offshore wind energy market has so far been in line with what Iberdrola expected that is not to say it has been without challenges, says Mr Cole.

OW12_spread.jpg 6 2Iberdrola was keen to enter the market because looking forward offshore wind provides the greatest opportunities for growth in the renewables sector of the key markets in which we participate, he says. “The onshore market is maturing and is not getting any easier.” Many of the larger project sites that lend themselves to onshore development and where it is easier to get consent have been developed, so it is perhaps natural to look offshore, adds Mr Cole. “But equally, this is not to say that onshore has had its day by any means and it will still be a big part of the renewable sector.”

When it comes to offshore wind, he admits, “we never expected it to be easy; we knew there would be a number of challenges when an industry is ramping up so quickly and moving into an area where it will face increasing physical challenges.”

On course

However, despite these challenges Iberdrola is on course with its business plan and delighted to be launching its first offshore project next year, the West of Duddon Sands project in the Irish Sea. Currently, the company has three “near-term” areas of focus in the UK, Germany and France. Iberdrola has more than 10,000MW under development in the UK and Germany, as well as its recently awarded licenses in France. The major offshore projects include the 390MW West of Duddon Sands project and the 400MW Wikinger in the Baltic Sea. Iberdrola, along with EOLE/ RES, was also awarded rights to build and operate a French offshore wind farm in the Saint Brieuc, Cotes D ‘Armor, representing 500MW installed capacity. Additionally, the huge East Anglia project in the North Sea, which could finally encompass 7,200MW, is high on its agenda.

Iberdrola and Vattenfall were awarded the development rights for the East Anglia Offshore Windfarm Zone by the UK’s Crown Estate and they subsequently formed a joint venture company called East Anglia Offshore Wind Limited (EAOW). The companies are working with stakeholders to realise the full potential of the zone, with initial studies identifying a target capacity of up to 7,200MW, which would provide enough green energy for more than 5 million households. The first project in this area is underway. Known as the East Anglia ONE Offshore Windfarm, this development is located in the south of the zone and covers an area of approximately 300km2. The closest distance to land is located 43.4km off the coast of Suffolk. EAOW has been provided with a grid connection offer from National Grid for 1,200MW.

We have built up a pipeline of potential projects for the next 10 tol5 years, selected some, focusing on those that we think represent the most attractive investment opportunities. We haven’t set a definite deadline for a megawatt target but concentrated on the best opportunities,” stresses Mr Cole.

OW12_spread.jpg 6 3

“It is quite clear that we can get the Duddon Sands project started next year. East Anglia is part of the UK’s Round 3 projects, with enormous potential. We will be focusing on getting this through to construction in manageable sizes. In Germany, we have Wikinger, which we now have partial consent for and this is on schedule within the timeline for the new ‘compressed tariffs’. In France we have secured a license to develop in the zone Saint Brieuc.”

“We have three areas of focus with a solid pipeline, plenty of activities and plenty of opportunities.” Given the workload, for the moment Iberdrola is not venturing further afield out of Northern Europe. Mr Cole commented that although the underlying regulatory environment of the UK, Germany and France are quite different, the common factor in all three areas of focus has been the degree of regulatory support in each country. “In France we had waited many years. Yes, the process is quite different in terms of the license and tender rounds, involving more work up front than other markets. It is designed with a much greater degree of public debate included in the whole process. We are very happy to be awarded the one we wanted.”

All three countries offer a stable regulatory perspective and that is a major reason to concentrate on these areas, he adds. “As a developer we are well supported and have a stable environment to operate in.” However, although each country had very supportive regulatory environments, there are still areas to improve, particularly in relation to the duration of the planning system and grid connectivity, he adds.

Given the ambitious wind energy targets, does Iberdrola feel that the industry is ready for the proposed offshore expansion, particularly as many farms will be further from the shore?

“Certainly if the industry did nothing it would be difficult for the supply chain, but the industry is gearing up for the more challenging conditions and deeper water.” Iberdrola, for instance, has worked very closely with governments, both at national and local level, as well as with all members of the supply chain. “We have deliberately taken this approach very early on and worked with the supply chain to see its capabilities, and we looked to see if these would match our requirements, then we worked together to find solutions.”

In Mr Cole’s view the first wave of offshore projects will allow the supply chain players to start the process of standardisation and the second round will see the onset of the industrialisation process, which he considers vital if the industry is going to be able to lower the overall cost of wind energy.

OW12_spread.jpg 6 4

Industrialisation necessary

He believes there are four major steps to industrialisation, beginning with innovation and the development of new technology. “Equipment, turbines, foundations and so forth will become more reliable, more fit for purpose. But of course innovation takes time and is expensive.” Then comes the process of standardisation, which leads to safer practices, more economical and efficient solutions, he says. This is followed by the start of industrialisation, where the industry standardises and builds at scale. Finally, the industry will see more competition.

“I think we are now between the innovation and standardisation stages. The innovation is there, we are developing new technology, but for this to be viable we have to start to standardise.”

Evolution not revolution

For Mr Cole the innovation taking place is more a case of ‘evolution rather than revolution’. “There is no reason for wholesale change and there are reasons for encouragement. Turbines are much better these days, being more tailored for the offshore industry, with better redundancy, diagnostics, easier maintenance and this process will continue and be crucial for the next step.”

For foundations, we don’t necessarily need more innovation but we do need to standardise them as much as possible, he adds. “Then instead of having competition between the foundation engineering companies we will have competition on the manufacturing side because they are being mass produced and this will bring down the costs.” With the supplies of installation vessels and wind farm servicing vessels, the industry is already seeing larger vessels, which can carry more turbines and foundations, more crew, have quicker jack up capabilities etc. “Things are happening but it is nothing really new or innovative. It is not necessary to bring in completely new innovative equipment with its risks and cost.”

There are areas that need attention if the industry is going to progress as planned however, he stresses.

Needing attention

High Voltage Direct Current (HVDC) cables are certainly one of the areas of concern. “We have seen the cable lead times in the German North Sea projects having an impact on the rate of build out. We are keen to learn any lessons for new projects in the UK. These lead times need to be shortened and we are looking at the HVDC issue.”

Mr Cole believes that the HVDC problems come from a combination of factors; one being that there is not an abundance of manufacturers of these highly specialised cables but also he blames the very long time it takes to design the offshore platform layout to which the cables are connected. “A standardised design would help here as well.”

Another possible bottleneck concerns the human factor. “There is going to be a gap unless we as an industry attract more engineers and more mariners into system – a lot of work still needs to be done here.”

Iberdrola is working with education establishments and governments in order to address this issue. “We talk to the supply chain in advance, we know it takes a long time for people to be a master mariner for example. But there are opportunities to reskill and move into other sectors, such as former fisheries workers. We help the further education establishments to make sure that there are suitable training courses available.”

This approach of going as early as possible to the supply chain is at the very heart of Iberdrola strategy. As he points out when it came to West of Duddon Sands, both Iberdrola and partner Dong Energie went to the market very early on and made it clear what installation vessels would be needed and these are on track to be ready for the project. “We took the long-term view and showed what we had to build, we offered something – giving certainty.”

For foundation structures, if it is assumed jackets will be the dominant foundation type then insufficient fabrication capacity could be an issue. “There are opportunities in Germany and the UK where new capacity could be created. We are working with the Scottish government and organisations to make sure there will be enough to meet demand.”

With these concerns, would the company take the step of actually investing in vessels or manufacturing capacity itself? “In the ideal world we would not have to vertically integrate, we should just focus on our main purpose, generating electricity. But perhaps there could be an intervention if it is needed. However, it is not our plan to own parts of the supply chain. But this is why we want to ensure good visibility into the projects so the supply chain can prepare in plenty of time.”

Economic impact

As the economic and Euro crisis in Europe has started to bite has this impacted Iberdrola’s view of the offshore wind market, particularly being a Spanish company?

Mr Cole stresses: “I think as long as you believe in a project the Euro situation will not change the views of utility companies with regards to offshore wind. We had already committed to East Anglia and Wikinger before the crisis and at that time we made sure at every step that they are the right projects with the right risks and returns. We are just as committed now.”

However, while the large utility companies may remain unaffected, he thinks it is possible that smaller supply chain players could be hit.

“The offshore wind sector is always going to be for the large players and utility led. I don’t think the crisis will be an issue for the utilities but further down the supply chain, it could be for local manufacturers for instance that need to develop their facilities and can’t get the funding. Financing will be an issue for some but the utilities are driven by a very different business model.”

Are the 2020 targets going to be achievable?

Mr Cole believes the 2020 targets remain challenging, particularly given the generally slowing picture of industrywide installation rates over the next eight years. “It is probably not as high as the number predicted a few years ago.”

However, he doesn’t think this is such a bad thing. “The industry is setting more realistic time frames now, but I do not believe this is negative, we now have a much more credible plan. Importantly, this allows the supply chain to have security. It doesn’t do the industry any good to say we are going to achieve 5MW a year and then we only build 2MW. There is now a much more credible work pipeline.” 

“We are building out over a longer period of time perhaps, but this is creating jobs for the longer term. There is no benefit in rushing as fast as we can towards achieving the 2020 targets and then making a dramatic reduction straight afterwards. The rate of installation looks like it is coming down but I feel this is actually quite positive.” But Iberdrola itself won’t be too far behind its 2020 targets, he adds.

Reasons to be encouraged

Mr Cole says there are plenty of reasons to be encouraged in the sector. “I am absolutely optimistic, there are plenty of things to be done. Going forward just two years West of Duddon Sands will be constructed, we will place the major contracts for Wikinger and East Anglia and we should have planning consent in France.”

“We have credible plans for the next 10 years. With just our four key projects alone we should realise 2.5GW.”

As well as these major projects, there is a whole lot more going on in East Anglia and the Baltic, he adds. “There are plenty of opportunities in Northern Europe. I am confident that we have the political support necessary, it is not a question of election-to-election politics.”

But he warned that the industry has to earn this support by targeting further cost reduction and by creating economic benefit for the countries were it is operating. “We have to honour that.”

Helen Hill