An overview of the EU offshore wind market, including the UK and analysis of the cost of energy drives with an assessment potential impact of technology changes

1. UK Offshore Wind:
latest vision of market and
technology development
Giles Hundleby
BVG Associates
23 October 2014

2. • EU offshore market
• The UK offshore market
• Cost of energy driver
• Technology changes
Contents
Agenda
Selected clients
BVG Associates
• Market and supply chain
• Analysis and forecasting
• Strategic advice
• Business and supply chain development
• Technology
• Engineering services
• Due diligence
• Strategy and R&D support
• Economics
• Socioeconomics and local benefits
• Technology and project economic modelling
• Policy and local content assessment
2/11© BVG Associates 2014

3. UK
41%
DE
33%
NL
9%
DK
5%
BE
4%
NO
3%
FR
3%
Other
2%
0
10
20
30
40
0
2
4
6
8
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21
Cumulativeinstalled
capacity(GW)
Annualinstalled
capacity(GW)
UK DE NL DK BE NO FR Rest of Europe Cumulative
EU offshore wind market for supply to 2020
© BVG Associates 2014
EU Market
EU market history
• UK most consistent,
growing market
since ‘03 (CAGR 33%).
• UK 3-year slow-down
‘14-’16 impacts whole
market.
• Germany only starts at
scale ‘14.
• Installed capacity to ‘16 now almost set.
3/13
• CAGR in period 21%.
• Leading market is UK. UK and Germany, make up ¾ of the forecast EU market.
• All offshore wind markets are subsidised to a roughly similar extent and support is likely to
be required until at least 2030.
• Typical time from first development activity to first operation of UK projects is about
10 years. FID typically 3 years before first operation.
• Average turbine size moving from 4MW to >6MW by 2020.
Market forecast

4. 4© BVG Associates 2014
Completed or under construction:
Includes projects in which the main
contracts have been placed. 5.1GW
Consented: Projects that have
received planning consent. 5.6GW
Consent applied for: Application has
been submitted. 10.3GW
The UK market

5. 5© BVG Associates 2014
Projects in the planning process
Pre-
application
Acceptance
Pre-
examination
Examination Decision
Post
decision
Navitus Bay
PINS accepted on
09/05/2014
Dogger Bank
Teesside
A&B
PINS first round
of responses
closed 12/06/2014
Dogger Bank
Creyke Beck
PINS recommendation
by 18/11/2014
Hornsea
Project one
PINS examination
closed 10/06/2014
Walney Extension
PINS recommendation
07/08/2014
Decision by 07/11/2014
Burbo Bank
Extension
Decision by
26/09/2014
Neart na
Gaoithe
Marine Scotland
decision expected
Q3 2014
Recently consented
Beatrice March 2014
Moray Firth Phase 1&2 March 2014
East Anglia One June 2014
Rampion July 2014
Firth of Forth
Phase 1
(Seagreen)
Marine Scotland
Inch Cape
Marine Scotland

6. 6© BVG Associates 2014
Completed or under construction:
Includes projects in which the main
contracts have been placed. 5.1GW
Consented: Projects that have received
planning consent. 5.6GW
Consent applied for: Application has
been submitted. 10.3GW
Targeting ROCs: Companies have
published timelines. 1.3GW - 2GW
FIDER contracted: Announced in April
2014. 3.2GW
Targeting CfD?: Projects that meet the
criteria (or are expected to soon):
2.8GW – 4.4GW
Challenge: Government only expected
to support 500-600MW this year
The UK market

7. 5.1
1.5
0.5
1.1
2.1
3.0
7.7
0
5
10
15
20
25
Installedcapacity(GW)
Government range (low)
Government "achieveable"
Government range (high)
7© BVG Associates 2014
The UK market
2014 - 17 2016 - 18 2017 +
ROCs - consented
Galloper
Race Bank
Rampion
ROCs – Applied for
consent
Neart na Gaoithe
FIDER (Provisionally
affordable) - Consented
Beatrice
Dudgeon
FIDER (contracted) -
Applied for consent
Burbo Bank Extension
Hornsea Heron/Njord
Walney Extension
Project progress is
dependent on both
planning consent and
public funding approval .
Achieving a final
investment decision will
still be dependent on the
developer but these
other factors give an
indicative “running order”
16.5

8. 5.1
1.5
0.5
1.1
2.1
3.0
7.7
0
5
10
15
20
25
Installedcapacity(GW)
Government range (low)
Government "achieveable"
Government range (high)
8© BVG Associates 2014
The UK market
Not yet applied for CfD -
Consented
Blyth (demo)
East Anglia 1
EOWDC (demo)
Moray Firth
Triton Knoll
Not yet applied for CfD -
Applied for consent
Dogger Bank Creyke Beck
Dogger Bank Teesside
Inch Cape
Navitus Bay
Seagreen Alpha/Bravo
It is likely Government
will only accept an
increase in offshore wind
activity beyond its 10GW
target if it sees strong
arguments to do so.
These could because of:
- Greater cost reduction
- Increased UK activity
16.5
2014 - 17 2016 - 18 2017 +

9. 0
3
6
9
12
0.0
0.5
1.0
1.5
2.0
'14 '15 '16 '17 '18 '19 '20
Cumulativeinstalled(GW)
Installedcapacity(GW)
Operational/ Underconstruction ROCs FIDER CfD Demo Cumulative
9© BVG Associates 2014
UK market forecast
Gwynt
y Môr
West of
Duddon
Sands
Humber
Gateway
Westermost
Rough
Kentish Flats 2
Neart na
Gaoithe
Rampion
Dudgeon
Dudgeon
Burbo Bank
Extension
Race
Bank
Race
Bank
Rampion
Galloper
Beatrice
Walney
Extension
Beatrice
Hornsea
Heron
Wind
Blyth
EOWDC
Moray
Firth –
Phase 1
Hornsea
Heron
Wind
Inch
Cape
Moray
Firth –
Phase 1
Hywind
Notes
Rampion may not go for ROCs
Uncertainty about Neart na Gaoithe
Forecast gives DONG about 0.5GW/year and
Siemens about 1GW/year from 2017
Neart na
Gaoithe
Galloper
Neart na
Gaoithe
Rampion
Walney
Extension

10. Cost of energy
Health warnings
CAPEX has been going up, not down
© BVG Associates 2014
Cost of Energy is more than just CAPEX
LCOE = Revenue (from whatever
source) / MWh required in order to
get sufficient return on investment
LCOE = Annualised CAPEX + OPEX
AEP
~ €160/MWh
Today
£100/MWh (€125)
In 2020
€100/MWh
late 2020’s?
$100/MWh (€80)
in 2040’s?
10/11

11. 4 Dimensional cost model: Time, types of wind farm site,
turbine sizes, industry scenarios
6 Industry day-long workshops (in UK, DK, DE)
20 Deep industry interviews (4 hours +)
125 Industry individuals directly involved
215 Pages – available for download
from our website
Methodology in numbers: technology work stream
The Crown Estate study
Overview
• 2011 UK Government Energy white paper:
• Central scenario 13GW by 2020
• Minded to support to 18GW if cost of energy
reduced – target £100/MWh
• The Crown Estate cost reduction pathways study established to
evidence what industry thinks could be done
• Supply chain, finance and technology work streams
= + +
• Published summer 2012
Context
Cost reduction pathways study: results
• Given right external conditions, industry
can meet target:
• Confidence in market size to beyond 2020
• Smooth and timely transition under EMR
• Planning consent timelines reliably met
• Clear and predictable offshore grid
regulatory framework
• Facilitation of new technology introduction
• To deliver, industry also needs to work together:
• Best practice, standardisation,
risk management, accessing new finance
© BVG Associates 2014 11/11

12. Technologies
Where are the greatest savings?
Advancements in blade and turbine technologies
70% 75% 80% 85% 90% 95% 100%
LCOE for wind farm with FID in 2011
Increase in turbine power rating
Optimisation of rotor diameter, aerodynamics,
design and manufacture
Introduction of next generation drive trains
Improvements in jacket foundation design and
manufacturing
Improvements in aerodynamic control
Improvements in support structure installation
Greater level of array optimisation and FEED
About 30 other innovations
LCOE for wind farm with FID in 2020
Impact of innovation in on LCOE
Source: BVG Associates
© BVG Associates 2014 12/11

13. Turbine rating
Larger turbines cost much more, but...
From 4 to 6MW turbines
-10% -5% 0% 5% 10%
Wind farm development
Turbine rotor
Turbine nacelle
Support structure
Array cable
Installation
OMS
Net AEP
DECEX
Impact of change in element on LCOE
-30% -20% -10% 0% 10% 20% 30%
Wind farm development
Turbine rotor
Turbine nacelle
Support structure
Array cable
Installation
OMS
Net AEP
DECEX
Change in element
Source: BVG Associates
© BVG Associates 2014 13/13

14. Anticipated by 2020 Progress
Turbine
Balance of plant
Installation
OMS
Development
Overall technology
Overall supply chain
Technology Progress
Comparison with other studies
• Similar but simplified approach (budget only 10% of The Crown
Estate study)
• Often identical assumptions – aids comparison
• Similar trends, except:
• Higher energy losses due to aerodynamic wakes
• Higher support structure savings but lower installation savings
• Lower cost of capital
• More sharing of offshore infrastructure
German Stiftung Offshore Windenergie (2013)
KIC InnoEnergy (2014)
• Identical but simplified approach (budget less than 5% of The
Crown Estate study)
• Part of a series to be published on onshore wind and solar, using
same methodology
• Identical assumptions
• Assessment brought up to date
• Forecast extends to FID in 2025
Progress check (technology & supply chain)
-2%
-2%
-
--5%
-17%
© BVG Associates 2014 14/11
-4%
-25%
-15%

15. • UK market likely to reach c 11GW installed capacity by 2020
• Significant share for Siemens
• Introduction of 7MW and 8MW turbines expected in projects before 2020
• Turbine and rotor developments will carry us beyond 2020
• Jacket foundation developments still to make a big impact
• Improvements in cables, installation and OMS need to be carried on
beyond 2020
15© BVG Associates 2012
Conclusions

16. Thank you
BVG Associates Ltd.
The Blackthorn Centre
Purton Road
Cricklade, Swindon
SN6 6HY England, UK
tel +44 1793 752 308
info@bvgassociates.co.uk
@bvgassociates
www.bvgassociates.co.uk
The Boathouse
Silversands
Aberdour, Fife
KY3 0TZ Scotland, UK
tel +44 1383 870 014
This presentation and its content is copyright of BVG Associates Limited - © BVG Associates 2014. All rights are reserved.
Any redistribution or reproduction of part or all of the contents in any form is prohibited other than the following:
• You may print or download to a local hard disk extracts for your personal and non-commercial use only.
• You may copy the content to individual third parties for their personal use, but only if you acknowledge BVG Associates as the source of the
material.
You may not, except with our express written permission, distribute or commercially exploit the content.
4444 Second Avenue
Detroit, MI
48201 USA
tel +1 206 459 8506
cjn@bvgassociates.com