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Changing investment climate

William Gard

Nuclear lessons for offshore delivery.

Part of the UK energy jigsaw is the ability and enthusiasm of the domestic supply chain to invest in offshore renewables: wind, wave and tidal. The hurdles to involvement are significant but comfort can be drawn from the recent announcement that the UK’s first nuclear power project for 20 years is finally to be built. There is financial support from government with both Hinkley C and a 450MW offshore wind farm in the Forth estuary having prequalified for a share of the £40bn UK Guarantee Scheme.

Like nuclear, supply chain buy in to stringent health and safety standards is essential in the offshore sector (NCE 24 May). A similarly steep learning curve comes in the shape of how offshore projects are likely to be procured.

Those contractors experienced in oil and gas (which traditionally uses contractor friendly contracts) should quash any expectation that a similar approach will be used to procure offshore renewables.

Cash rich oil and gas businesses are very different to debt funded offshore renewables developers.

Robust supply chain

Offshore developers are more likely to need the supply chain to agree to robust, project financeable terms. Even where early phases are not project financed, developers will still require assurance that any long term relationship is commercially fundable.

That is not to say that the supply chain has nothing to learn from oil and gas. That knowledge will clearly benefit understanding of factors such as technical requirements, weather risk and insurance arrangements.

As with nuclear, the investment required can be daunting for a supply chain that needs to spend time understanding offshore requirements in order to be in a position to win work.

Offshore projects may require contractors to accept risks which they are currently not comfortable with, for example vessel chartering.

Stiff competition is provided by more experienced non-domestic offshore contractors. Similar problems face those trying to get involved in nuclear new build, currently dominated by foreign suppliers.

Even where the supply chain commits to buy in to offshore, there is no guarantee that such investment will lead to work. This uncertainty is exacerbated by a lack of clarity in energy policy. The domestic nuclear supply chain is all too familiar with such uncertainty. So why should the UK supply chain be willing to invest in the offshore sector?

The government’s nuclear policy contains part of the answer. It emphasises the marketability of experience gained here when tendering for nuclear work overseas. Similar opportunities await those involved in delivering the UK’s world leading offshore projects.

Finally, the parallel roll-out of nuclear and offshore renewables projects is likely to stretch established contractors’ resources, meaning there should be plenty of work to go around.

  • Will Gard is a chartered civil engineer and a partner at Burges Salmon

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