A new report suggests ‘Mega Projects’ – large-scale projects that would bring together multiple players to further the development of offshore wind – could be transformative in their effect
“Mega Projects have proved successful in other industries, and we believe they could be transformative to the offshore wind sector,” said the ORE Catapult, which put together the report.
“In addition to the UK Government’s annual Contracts for Difference scheme, Mega Projects would include a separate allocation round every 3-5 years, targeting delivery of 15 GW of offshore wind within specific geographic areas.”
The report found that Mega Projects could have a number of potential benefits, including the creation of up to 10,000 extra jobs (a 6% increase compared to not pursuing them); and the generation of £16.6Bn gross value added (GVA); support for future manufacturing jobs; and a reduction in total project cost by 15% (£10.8Bn) over a 25-year period.
The primary objective of the analysis undertaken by the ORE Catapult was to compare the economic feasibility of two different windfarm project configurations: five 3-GW, standard configuration, windfarms versus one 15-GW ‘Mega Project.’ The 15-GW project would not be one contiguous site, but multiple lease areas all supplied via one centralised onshore manufacturing, logistics and servicing hub.
The analysis highlights cost benefits associated with Mega Projects and the mechanisms through which this can impact prices, including economies of scale and learning rates. The analysis quantifies and compares the wider economic benefit to the UK for each scenario, including the GVA impact resulting from greater UK content.
Mega Projects offer increased certainty for large-scale deployment, making supply chain and infrastructure investment easier to justify. They provide commercial stability over a long timeframe, encouraging investment and boosting local content, while maintaining 100% private funding backed by custom CfDs that can be awarded using established government powers.
The ORE Catapult said that in the Mega Project configuration, development costs could be reduced by 60%, driven by surveying and development costs pooling into a single project. Capital costs could be reduced by 14%, driven by economies of scale, volume and standardisation, and operational costs could be reduced by 15%, driven by efficiencies realised from a centralised operations and maintenance strategy.
The analysis assumes higher levels of UK content come with increased certainty, industrialisation and standardisation. The full extent of the direct GVA benefit is curtailed by overall project cost reduction. However, on balance, the ORE Catapult sees an 11% increase in GVA and a 6% increase in jobs, alongside a saving for consumers via more competitive CfD bids.
“Whilst these are encouraging indicators for the Mega Project configuration, the weighted average cost of capital could be higher, due to greater concentration of risk and need for a wider diversity of lenders. However, an evolution of the financing environment in response to Mega Projects could offset this negative impact,” the report concludes.
