The Supply Chain Opportunity

The Supply Chain Opportunity

By Patricia Hawthorn, Partner, Shepherd and Wedderburn

As The Crown Estate and Crown Estate Scotland prepare to launch new licensing rounds for offshore wind in UK and Scottish waters, a notable and sizeable stakeholder group is taking a very keen interest – the offshore supply chain, in particular the Scottish offshore supply chain. And with good reason.

For a start, we have two very large fixed offshore wind projects in the Firth of Forth and Moray Firth nearing or in procurement, and the Kincardine Offshore Windfarm Project, another floating demonstrator project on the cusp of construction and all of this on our doorstep.

At present, the clear message from Westminster and Holyrood is ‘local content’ is high on their respective political agendas.

Also, there are tangible opportunities to export goods and services around renewables globally, notably to the emerging markets.

And finally, it seems highly likely The Crown Estate and Crown Estate Scotland will be scrutinising bids for their forthcoming rounds carefully based on supply chain commitments.

So, are the planets aligning for home grown businesses, many of which were hit hard by the fall in the price of oil and from oil and gas operators cutting back on supply chain spending?

Well, not quite yet.

There is a reason why the domestic market might not see the full benefit of these offshore construction opportunities and it is nothing to do with politicians offering a view on who should be awarded what contracts. Nor is it a question of not having appropriate technical skills and expertise – actually the read across from oil and gas to offshore renewables is pretty good.

There are two fundamental differences between the sector that our domestic supply chain is used to servicing (and has serviced so effectively here and worldwide) and the market it is now targeting.

The differences stem from the Government contract that currently underpins offshore windfarms – which contains delivery milestones – and the funding and investment mechanisms behind offshore wind that drive the risk of not achieving those milestones all the way through the supply chain.

The supply chain say they simply cannot carry these risks and also remain competitive on price.

So, businesses that have thrived on a diet of balance sheet project funding from oil and gas Super Majors are now adjusting to offshore wind special purpose vehicles and project financing.

Contracts managers accustomed to UK oil and gas LOGIC terms and conditions are rapidly readjusting to FIDIC and other forms of contract.

Meanwhile, funders are getting to grips with the offshore world, where they have previously had only limited exposure.

The question (and focus for discussion at All-Energy) is, can we make this adjustment easier and, can we maximise the UK and Scottish offshore wind opportunity for everyone?

Patricia Hawthorn, partner at Shepherd and Wedderburn and an expert in advising public and private sector clients on consenting, regulatory and compliance matters relating to renewable technologies

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