Into the Unknown: Floating Offshore Wind
The following article is a guest post by Andreas Dracoulis (Partner), and Jonathan Morton (Associate) at the international commercial law firm Haynes and Boone.
Interest in the offshore wind industry has grown exponentially over the last year and the anticipated growth of the market is huge. The EU expects to have 450 gigawatts (GW) of offshore wind by 2050 to meet its climate targets. Boris Johnson recently announced a UK target of 1 GW floating wind by 2030.
Floating offshore wind will form a critical part of any future development, given that the viability of traditional fixed offshore wind projects is often constrained by seabed geology and water depth. Indeed, while the UK and northern Europe have been able to exploit favourable seabed conditions to lead the way in fixed installations, elsewhere in the world use of fixed wind structures can be extremely problematic.
The potential for floating wind is, therefore, truly global. However, how that market will develop over the next 10 or 20 years remains largely unknown. The technology is still in its very early stages of development. Whether the manufacturing process will require the facilities of a substantial shipyard or if it can be done by smaller entities is dependent on which design is proposed. Similarly, the most appropriate contractual structure for such projects will largely be determined by the nature of the technology being used. It will therefore be up to those willing to take the plunge and lead by example to delineate the shape of the sector in the future.
Change Is Coming
There are currently around 40-50 different concept designs in circulation, varying from simple concrete spars to complex semi-submersible structures supporting multiple turbines as well as other hybrid systems. Generally speaking, existing turbines can be used on such floating structures with only minor modifications, and it is therefore the platform design itself which is unique to the industry. The field is crowded with contenders, and some successful demonstration projects have already been installed. However, each design has its own upsides and downsides, and no clear winners have yet appeared.
Regardless of the designs that remain standing once the dust has cleared, floating offshore wind will change the offshore wind supply chain significantly. The foundations will be radically different to the monopiles and jackets used for fixed wind turbines and solutions for manufacturing and transporting them will need to be developed.
With DNV-GL recently publishing its first set of rules for floating offshore wind structures, and Samsung Heavy Industries announcing its joint project with DNV-GL to develop a large capacity offshore floating wind design, it is clear the traditional shipbuilding industry is keen to establish itself in the market. Indeed, they are already doing so. The Kincardine floating wind farm off the coast of Aberdeen in Scotland, for example, has floating foundations designed by Principle Power, manufactured by Navantia-Windar at the Navantia Fene shipyard in Spain. The foundations are of a triangular-shaped semi-submersible design, which will be secured to the sea bed by four mooring lines. The turbines themselves are provided by MHI Vestas and combination of the two parts takes place in Rotterdam, before transportation and installation by Boskalis. The project therefore represents something of an amalgamation of the shipbuilding industry and the offshore construction and transportation sector.
Learning from Experience
The use of semi-submersible or tension leg platforms in floating turbine designs means that the integration of the shipbuilding and oil and gas industries’ experience into the development of offshore floating wind projects will be vital. Semi-submersible structures have long been used all around the world, and this experience base should not be ignored. This will be even more the case should emerging proposals for hybrid platforms (incorporating wave or solar power, for example) become feasible, and the platforms themselves become substantially more complex. Where cost reduction, and economies of scale, are key to the viability of the sector, time and expense should not be wasted on re-inventing the wheel. The future of offshore floating wind will therefore necessarily involve collaboration between the traditional shipbuilding sector, the oil and gas industry, offshore contractors, and energy companies. Discussions need to take place on a range of issues, including:
How can the design be improved to make it easier to lift/install?
- How can the design be made as modular and cost effective as possible?
- Can the substation be manufactured in a serial rather than batch production system?
- Will simple quayside assembly be possible?
- Can the industry’s experience with the standardisation of FPSO construction be brought into play (e.g. generic topsides that can simply be slotted on)?
- To what extent can existing technologies for mooring systems, dynamic cable arrangements and crew transfer systems, for example, be incorporated?
However, the need for the technology to become simple, standardised and modularised may be in conflict with the potentially segmented nature of such projects and the legal expectations of different parts of the supply chain. At the very least there will likely be both a contract for construction of the structure itself (likely split between the turbine and platform manufacture) and the installation and balance of plant contracts. The legal framework these groups are used to working in are all different, and the standard contractual forms (and, most importantly, norms of risk allocation) can differ greatly.
The parties will need to thoroughly assess and ideally minimise the contract interfaces. Traditional fixed bottom designs generally only comprise the turbine and the foundation, while floating designs may have turbine, tower, mooring, floating structure, anchors, and installation to deal with. Contractors will be less comfortable with the technology, and as a more global industry they may need to work with an unfamiliar or inexperienced supply chain. Investors in particular will want to minimise their exposure to the risks such arrangements bring with them.
What contractual regime will be appropriate, and the risk structure the parties will accept, will therefore largely depend on the design. If it is a complex semi-submersible platform, we would expect shipyards with their experience of constructing similar structures for the oil and gas industry to be involved. They would likely therefore expect a similar contracting model to that used in the shipbuilding industry. However, a separate construction contract for the turbines and a T&I contract would then be required to complete the project. How can the parties ensure everything fits neatly together? Management of the partial handovers for the wind turbine integration then for the whole-system offshore installation between the suppliers and installers would be key.
Perhaps the answer would be for the developer to enter into an EPCI “turnkey” type contract with a large, experienced contractor willing to manage all aspects of the project. Indeed, some major contractors in the industry are already offering such packages, which will also be more attractive to investors in that they wrap up many unknowns into a simpler liability regime. However, the contractor must be confident it can take on the interface risk and co-ordination with subcontractors, and that the contract provides for adequate compensation and protection. There may also be a difference in opinion between the parties as to the appropriate allocation of risk.
The standard forms used in the shipbuilding industry differ in many ways between those used in offshore construction (LOGIC or the FIDIC Yellow Book being the most common). Much of this emanates from the fact that a shipbuilding project is, generally, concerned with the construction of the vessel by the shipyard within its premises for later delivery to the buyer. This can be contrasted with an offshore construction project involving the fabrication and subsequent installation of equipment and infrastructure in a marine environment many miles offshore. As different parts of the project will be using different contracting regimes (the foundation using a shipbuilding contract form, the turbines a more traditional construction form, and the transportation and installation contract using something based on LOGIC or FIDIC, for example), careful consideration of the difference between those regimes is required in order to ensure they mesh together correctly.
Some of the key points of difference between these forms arguably include, for example: design risk allocation and “fit for purpose” requirements; the treatment of, and responsibility for, delays and associated regimes allowing for the extension of time; supervision of the works and the relevance of classification societies; variation mechanisms; differing approaches to termination rights particularly in the context of lengthy delays and performance guarantees; post-delivery or post-completion warranty obligations; and use of knock for knock liability regimes in respect of loss and damage suffered by the parties. While a detailed examination of each of these matters is beyond the scope of this article, in the coming months we will be tackling some of key issues in separate briefing papers on the Haynes Boone website.
Ultimately, however, much will depend on the context of the project, the technology in use and the nature of the parties involved. Careful negotiation, and a desire to collaborate and share lessons learnt, will be vital to ensure the success of the industry in the coming years.