Quick and Dirty?

Infrastructure investment in renewable energy

The case of performance of offshore wind farms Christian Koch Aarhus University Nordisk Forum 2011

Presentation CK

Mc. Engineering Ph.D. Social Science Professor (WSA) Technology based Business Development 1985-1990 Technological Institute 1994-1999 Research Centres (Management of Technology) Technical University of Denmark (TUD) 1999-2007 Building Processes and Management, (TUD) 2007- Center for Innovation and Business Development, Aarhus University (cleantech business development)

Challenges of Renewables

Ambitious Government plans – on the move

EU budget 2014-2020 announces a 20% focus on sustainability renewable energy EU 2020-20-20 (2009)

Denmark Norway Sweden United Kingdom

Quick delivery needed

But at any cost? Initiating question: Do renewable power plant projects suffer from the same mechanisms as other megaprojects (re. Flyvbjerg) ?

Mega projects (Flyvbjerg)

Flyvbjerg et al (2003:16) notes that cost and time underestimation is a global and longterm phenomena and it is not deteriorating over time. Cost and time underestimation cannot be explained by technical error, but rather by psychological, optimism bias and socio- political, strategic misrepresentation

Strategic Misrepresentation

Two components : underestimation of costs and overestimation of benefit Sociological phenomena; a series of private and publice players have common interest in promoting a mega project (Flyvbjerg and COWI 2004)

Indirect argumentation, counterfactual

Case Offshore wind farms

The outside view Exploratory work

Desk research Limitations (not full view of costs and benefits)

Offshore wind farms strategically important to society

• Offshore wind farms are expected to grow as market at

approximately 45% from 2009 to 2015

• Government place wind as central climate strategy, yet it takes looong time and the investment are substantial

• Is the investment done in the optimal way?

• Good reasons to investigate costs, time and operational performance results of offshore wind turbine projects,

8

What is a wind farm?

• Turbines

• Foundation

• Infield cable

• Substation

• Export cable

9

Main processes

1. Preparatory and regulatory process

2. Design, Manufacture and Implementation

1. Operation

Main processes Prepatory process

• Preplanning (Investigations of potential sites a.o.)

• Environmental, Archeological, Geophysical and more investigations

• Five regulating laws to follow (ecology, planning, naval traffic, fishing)

• Consents

• Finansing

• Tendering Bidding

Main processes Implementation

• Preplanning (Investigations of potential sites a.o.)

• Manufacture of components (turbine, substation, cables a.o.)

• Transport

• Foundation

• Assembly of turbines (interface with foundation)

• Single Turbine Test

• Power plant test

• Commissioning Gerdes et al (2005)

Main processes Operation

• Production of power

• Surveillance

• Maintenance

• Repair

Phase 1 Experiences

10 UK offshore wind farms:

Round 1, 2 and 3

Preparation takes averagely 4 years

-apparently well planned and designed

-assuring tendering and proper bidding (Anholt)

Phase 2 Implementation

Focusing in on implementation processes

Scroby Sands Monopile deployment

16

17

A2sea

Who makes them?

Example contractors at Kentish Flat: • EDF Energy, UK (Grid Connection) • Vestas Offshore Associated contractors (Wind Farm) • MT Hojgaard, DK (foundations) • AEI Cables, UK (cables) • MPI, UK (installation, foundations) • Global Marine, UK (installation, offshore cables) • Fitzpatrick, UK (installation, onshore cables) • A2SEA, DK (installation, turbines)

18

Focus on British offshore farms

• 20*20 segment

• Recent

• Comparable

• Monopiles

• Average Cost 333 mio. Euro in 2003-2010 prices (Flyvbjerg average 300 mio Euro 1995 prices, 2% yearly inflation)

Focus on British offshore farms

• Barrows

• Burbo Banks

• Gunfleet Sands

• Kentish Flats

• Lynn and Inner Dowsing

• North Hoyle

• Rhyll

• Robin

• Scroby Sands

• Thanet

Results Budget overrun

21

Results Time overrun

22

Delays (indicative)

• Most frequent explanation: bad weather, especially during winter.

• Product technology:-turbines -testing, cables

• Implementation equipment bottleneck (vessels)

• Cabling processes gives problems

Phase 3 Operation: Performance

24

Discussion I: Not quick

• Considerable time and cost overruns.

• A small share of the wind farm has relatively, some might say acceptable, low overruns.

• No project ends before time or under budget. • Operation exhibit under performance so far

26

Discussion 2: But Dirty

• In SUM indications of strategic misrepresentation (so DIRTY in that sense)

• No clear learning curve, need to relax public incentives?

• The long and the short time span (public, regulatory reform still needed)

• Delays due to weather, product technology, site, process, equipment bottlenecks

Conclusion

• Offshore wind farms do not distinguish themselves from other mega projects ( Flyvbjerg et al 2003, 2004, 2011).

• The analysis and results give basis for further investigation of assumptions of strategic misrepresentation (and may be optimism bias)

• Mega projects should be understood as combined social and technical, qualitative and quantitative, product and process

• Further work needed

28

Implications

• (practical)Reference Class Forecasting pro et cons

• (practical) Mass Customisation, product configuration

• Life cycle costing

• (research) Public- Private interaction; political, financial, performance, PPP

• (research) supply chain and manufacture

• (research) process management