Bruce Valpy's presentation to the EWEA Offshore in October 2014. The lessons learnt from Europe's cost reduction in wind energy are highlighted and the what opportunities this presents from the burgeoning US wind market.

1. Cost of Energy Reduction: The
European Story so far and a
forecast for the US
AWEA Offshore
Bruce Valpy
7 October 2014
© BVG Associates 2014

2. 2/18
• Why focus on reliability
• Cost of energy
• Health and safety
• Reliability focussed approach
• 10 steps to success
Agenda
Justification
Reliability focussed approach during wind turbine development
Introduction
© BVG Associates 2014
• BAV add
Selected clients
BVG Associates
• Market analysis and business development
• Supply chain development
• Economic impact assessment
• Support to industrialisation
• Project implementation
• FIT project development (UK only)
• SCADA & condition monitoring
• O&M technical support
• Technical innovation & engineering analysis
• Support to investment in technology
• R&D programme management
• Design and engineering services

3. • Cost of Energy
• 1 minute lesson
• Things to remember
• Europe: The Crown Estate cost reduction study
• Methodology
• Results
• Progress in Europe
• Learning and opportunities for US
Contents
Agenda
10-minute snapshot
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
3/12© BVG Associates 2014

4. Cost of energy
1-minute lesson
LCOE breakdownLCOE
© BVG Associates 2014 4/12
Where:
LCOE Levelised cost of energy in $/MWh
= revenue needed (from whatever source) to obtain rate of
return W on investment over life of the wind farm
(tax, inflation etc. not modelled)
Ci Capital expenditure in $ in year i
Oi Operational expenditure in $ in year i
Di Decommissioning expenditure in $ in year i
Et Energy production in MWh in year i
W Weighted average cost of capital in % (real)
= (cost of debt x % dept ) + (return on equity x equity portion)
n Operating lifetime of wind farm (baseline 20 years)
m Years before start of operation when expenditure first
incurred
i i year of lifetime (-m, ..., 1, 2, …n)
Project development and
permitting up to FID
1% Project management and
contingenciesfrom FID
to WCD
2%
Nacelle
20%
Rotor
15%
Tower
5%
Foundation supply
11%
Array cables
2%
Foundation
installation
5%
Array cable
installation
2%
Turbine
installation
1%
Transmission
charges
20%
Unplanned
service
8%
Operation and planned
maintenance
5%
Other
4%
Decommissioning
1%
CAPEX
64%
Balance of
plantsupply
13%
Operation,
maintenance
and service
35%
Turbine
supply
39%
Installation
8%
Project
4%

5. 0%
20%
40%
60%
80%
100%
120%
0 10 20 30 40 50 60
NormalisedLCOE
Cumulative installed capacity (GW)
Cost of energy
Things to remember
© BVG Associates 2014 5/12
LCOE for a well designed, well
operating wind farm a strong
function of:
• Energy production – driven
by wind speed distribution
• CAPEX - driven by water
depth, distance to shore
and technology
• OPEX – driven by accessibility
• Can vary +/- 30% just due to DNA
of projects
1. There is no single cost of energy 2. LCOE is more than CAPEX
Project development and
permitting up to FID
1% Project management and
contingenciesfrom FID
to WCD
2%
Nacelle
20%
Rotor
15%
Tower
5%
Foundation supply
11%
Array cables
2%
Foundation
installation
5%
Array cable
installation
2%
Turbine
installation
1%
Transmission
charges
20%
Unplanned
service
8%
Operation and planned
maintenance
5%
Other
4%
Decommissioning
1%
CAPEX
64%
Balance of
plantsupply
13%
Operation,
maintenance
and service
35%
Turbine
supply
39%
Installation
8%
Project
4%

6. 0
100
200
300
400
1980 1990 2000 2010 2020 2030
CostofEnergy(€/MWh)
Year of first commercial installation
Onshore
Offshore
0.01
0.1
1
10
100
1980 1990 2000 2010 2020 2030
Rating(MW)
Year of first commercial installation
Onshore
Offshore
© BVG Associates 2014
4. Cost of energy reduction is matter of life and death
Bill Shankly,
Liverpool Football
Club
6/12
3. Wind industry is doing it already
Cost of energy
Things to remember

7. 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
Europe: The Crown Estate Cost reduction pathways 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
• Permitting 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 7/12

8. Technicalpotential impactforgiven
Site Type, turbine size and year
Anticipatedtechnicalimpact
forgiven Site Type,turbine
size and year
Maximum technicalpotential impactof
innovation underbestcircumstances
Technicalpotential impactfora given Site
Type and turbine size
Relevanceto turbine size &
site type
Commercialreadiness
Marketshare
• Models changes in risk, with resulting impact on financing cost
• Numerous other stated assumptions, agreed with industry
Methodology
Robust cost model and industry-supported baselines
Cost Model
Wind turbines
Wind farm sites
Impact of innovations
Baselines
© BVG Associates 2014 8/12

9. Results
Where are the greatest savings?
Technology
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 9/12

10. Results
Where are the greatest savings?
Supply chain
© BVG Associates 2014 10/12
70% 75% 80% 85% 90% 95% 100%
LCOE for a wind farm with FID in 2025
Contract forms
Horizontal cooperation
Non-EU competition
Asset growth and economies of scale
EU competition
Vertical cooperation
LCOE for a wind farm with FID in 2014

11. Anticipated by 2020 Progress
Turbine
Balance of plant
Installation
OMS
Development
Overall technology
Overall supply chain
Finance
Progress in Europe
Industry doing well, despite tough environment
Progress check
-2%
-2%
--5%
-17%
© BVG Associates 2014 11/12
-4%
-25%
-15%
-2%
EU landmarks

12. Learning and opportunities for the US
Rainbow of opportunities for the wise
What could a 3GW pa market look like?
12/12© BVG Associates 2014
Shared with
other sectors
For
10GW
installed
capacity
• Build and preserve confidence – building an offshore wind industry
is a long game
• Establish continuity of competition - critical mass means
confidence in a ~3GW pa market
• Focus R&D and culture support on maximum cost of energy
reduction and collaborate rather than duplicate
• Technology is rapidly transportable – supply chain and culture
take longer
• Drive cost reduction agenda at developer level via market design
• Don’t constrain wind farm design too early – builds in cost
• Use experience from other sectors but don’t think offshore wind is
the same
• Keep focussed on the business case – share common languages
in talking costs, jobs, benefits etc
Big picture learning
5 Big projects, 350 turbines
3 Coastal nacelle assembly facilities (Alstom, MHI V, Siemens?)
• Geared and direct drive generators
• 50T+ castings
• Plus non-coastal supply
3 Blade facilities (2 in-house, LMWP?)
3 Tower facilities
1 Monopile facility, 100 monopiles (up to 8MW, 35m depth)
2-3 Jacket / floating foundation facilities, 200 jackets
1? Concrete gravity base facilities (1 project per year)
• Plus a lot of secondary steelwork
7 Offshore substations (HVAC, AC collector and HVDC)
800 km array cable (mainly 66kV)
1500km export cable (mainly HVAC)
8+8 Foundation + turbine installation vessels
(some bespoke for floating / gravity bases)
12 Subsea cable installation vessels
2 Heavy lift vessels
150 Personnel transfer & 15 service operation vessels
7 Large component replacement vessels
2000Offshore technicians
• Plus refurbishment and other support services

13. Thank you
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This presentation and its content is copyright of BVG Associates Limited - © BVG Associates
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You may not, except with our express written permission, commercially exploit the content.
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