DONG Energy has taken on the offshore wind market—and it is winning. Elaine Maslin explains.
A2SEA’s new wind farm installation vessel, the Sea Installer. Images from DONG Energy.
In a short period of time, Denmark has not only spread its international oil and gas exploratory wings, but also its offshore renewables expertise.
Its industry spawned Dangren Vindkraft, known today as Siemens Offshore Wind, as well as turbine manufacturer Vestas, and Danish vessel operator A2SEA. Fabricator Bladt Industries turned its hand to renewables as well, recently taking over the former TAG offshore wind turbine foundation facility on Teesside, northeast Engliand, with Germany’s EEW SPC.
A common thread is an involvement with DONG Energy, which has fast become the leading player in offshore wind. The firm, which started life as the state-owned Danish Oil and Gas company, has grown into a Danish utility company, now 59% state-owned. Today, exploration and production and wind power are its biggest business units, representing 39% and 47% of the business, respectively, as a share of earnings before interest, tax, depreciation and amortization.
But the wind division is growing fast. “We are the global leader in offshore wind, with 33% of the installed capacity (or 2.5GW),” said Brent Cheshire, managing director for DONG Energy Wind Power and country chairman for DONG Energy in the UK, while speaking to the NOF Energy conference in northeast England in mid-March. The next biggest offshore wind operator is Germany’s RWE with 12%, he said.
The UK has become a key part of DONG’s offshore empire in oil, gas and renewables. The firm has an extensive portfolio in oil and gas west of Shetland, including stakes in Total’s Laggan-Tormore development, which is a new subsea infrastructure-based hub in the west of Shetland region. Its portfolio also includes Rosebank, a major floating production project currently being reassessed by operator Chevron and its partners, as well as its own discoveries.
Offshore wind is a major part of the business. Despite only amounting to about 3% of UK energy supplies, offshore wind’s contribution to the energy market in the UK is growing fast. Currently, a 4GW is operational offshore and another 1GW is under construction in UK waters, Cheshire said. Another 12.5GW of capacity has been approved to be constructed, and a further 5.2MW is awaiting consent. If completed, the projects would total some 22GW.
DONG is already heavily invested in UK offshore wind, with 10 offshore wind farms in operation, seven of which it operates, and the Burbo Bank project in Liverpool Bay with Vestas turbines, which is now under construction. Another two are in development or moving forward, including the 330MW Walney Extension Offshore Wind Farm that includes 7MW Siemens turbines, off Cumbria, and the 1.2GW deep offshore Hornsea Project One, offshore Yorkshire. And a there is scope for more, including the 580MW Racebank Offshore Wind Farm offshore Norfolk, Cheshire said. DONG’s target is to have 6.5GW installed by 2020.
In fact, to make offshore wind competitive in the energy market place, companies must maintain a pipeline of projects so that suppliers can standardize equipment, modularize and drive down costs, Cheshire said.
“We have to drive costs down and we are driving costs down,” he said. DONG has been looking to reduce costs by 40%. If achieved, offshore wind would become competitive with combined cycle gas turbines or coal power with CCS by 2023, he said. With a market price on carbon, the economics would be further improved.
Savings can be made in both the capex and opex phases, Cheshire said. Capex risk can be reduced by optimizing site selection by focusing on seabed conditions, distances from shore and costs of transmission, for example. Too many early sites were not optimum and have resulted in additional costs, according to Cheshire.
By having a constant pipeline of projects, costs can also be reduced by making processes more efficient by creating production lines. Suppliers can also standardize equipment such as sub-stations. DONG is working with engineering consultancy firm, Atkins, on an optimized design for five sub-stations. “Maybe some are too big, but on a cost basis it makes sense,” he said.
DONG is also working with the Carbon Trust on suction bucket designs for foundations, to make installation more efficient. The first has been installed with a 6MW turbine offshore Germany. “It is a lot smaller and quieter to install,” Cheshire said, noting that noise is a concern for marine life, particularly when it comes to piling operations.
“In operations and maintenance, we have been designing new, fast, crew-change vessels,” Cheshire said. The market has provided new solutions, too, including A2SEA with its latest installation vessel capable of carrying eight turbines. DONG bought the vessel in 2009 with turbine manufacturer Siemens joining as a partner in 2010, allowing DONG to commission new vessels and reduce costs. The move is a reflection of DONG’s willingness to take a direct role in projects, from in-house engineering and design through operations, to help keep costs down.
Cheshire called for more involvement from the local supply chain, rising from 10% in 2010 to 50% by 2018-2020 on the likes of Hornsea Project One. Such efforts are now aided by Danish companies. For example, Siemens is building a new factory in Hull, East Yorkshire. Vestas’ has a blade plant on the Isle of Wight. And Bladt will have a manufacturing facility in Teesside.
“The opportunity is very large. It has been building and is continuing to build, and there is a real pipeline of projects up to and beyond 2020,” Cheshire said. “Costs are being driven down. We are looking at standardization, we are looking at a modular approach, and it is beginning to work. But still, more needs to be done.”