What can offshore wind learn from industrial manufacturing? DONG Energy’s Mats Vikholm, drawing on his experience as a top manager at Volvo, Pininfarina and SAAB, is at the helm to encourage best practices that can help to lower the cost of energy. Where has he started – and what are his responsibilities and viewpoints?
Mats Vikholm is Senior Vice President, CoE & Procurement at DONG Energy Wind Power. His responsibilities include the utility’s Levelised Cost of Energy (LCOE) efforts, and he heads a new, dedicated business unit mandated to work towards a reduction in LCOE.
“Cost reduction is a huge focus for DONG Energy and we are confident that we can reduce cost of electricity substantially,” says Mats Vikholm. “Larger turbines and other reductions to the Capex of a project obviously make a major contribution to reducing the LCOE, but there are also reductions that can be achieved through more efficient installation methods, optimising site selection, innovation in transmission solutions and extending the operational life of the project. One of the big drivers that need to move forward is the standardisation of offshore wind – not designing bespoke solutions for every site but trying to deliver standard designs where possible. An example would be common designs for offshore substations.”
He believes that offshore wind will be a natural part of the European energy mix in the future. But he has repeatedly stated that the offshore wind industry is “in a race against time”.
“It is not going to be easy, but there is no alternative to standardisation. We need to bring costs down. Otherwise, the future of this industry will be very uncertain. As we move toward 2020, subsidies will decline – so we need to continue to make offshore wind more competitive.” After 2020, Mats Vikholm insists, offshore wind’s cost of energy needs to be on par or better than other electricity sources, namely, gas, nuclear power and other renewable energy sources.
“As market leaders, we must assume a responsibility when we’re to reduce the cost of electricity from offshore wind turbines. But it’s also vital that the entire industry, the developers, the suppliers and the authorities work together and commit to reducing the costs. If we don’t all deliver on this, it’s almost certain that the industry will continue expanding at a slower rate than we see today or not expand at all.”
The target DONG Energy has set for the future is a 35-40% reduction in the cost of electricity compared with a 2012 level. And it’s Mats Vikholm’s job to ensure this applies to projects the company invests in from 2020 onward.
“With 35-40 percent lower costs and a realistic reflection of the costs to society of CO2, we are certain that offshore wind can indeed become competitive. But there’s no time to waste.”
For Mats Vikholm, who holds a degree in mechanical engineering, the next six years are going to be busy ones. In that time, he will be focusing on all stages in the supply chain, looking for new efficiencies wherever possible, and implementing the best new ideas. And he sees potential for reductions at all stages.
“The history of offshore wind is typical of any technology industry – dotted with imperfect technologies, supply chain limitations and cost levels that have room to move downward,” he explains. “That’s not saying that we haven’t achieved a great deal of positive things already, because that’s definitely the case, but like any young, large-scale industry, there are many more efficiencies still to be discovered.”
Standardisation is at the centre of DONG Energy’s cost reduction strategy, as according to the LCOE agenda, it is the pre-condition to drive down costs. Project-specific adaptations must be reduced to a minimum. To this end, DONG Energy has developed a “Standard Wind Farm” set-up, to be applied to all projects.
“You need a standard wind farm as a reference point, otherwise you have to create a unique wind farm every time you start on a new project. It’s like inventing the wheel every time. Now, we’ve designed a standard wind farm consisting of standard components and designed for a standard site.”
With this approach, DONG Energy follows many other industries that have successfully focused on standardisation, such as the Oil & Gas industry, combined cycle power plants, and the automotive sector. Mats Vikholm likens the standardisation efforts that are now underway in offshore wind to the principles of mass production lines. “Across-the-board standardisation is the only way to consistently improve effectiveness and cost-efficiency. As a by-product, you will also see health, safety and quality improve, too,” he says.
One essential prerequisite for mass production is volume. Looking at the number of projects DONG Energy has in the pipeline, Mats Vikholm is in no doubt that this requirement is already met.
“Our ambition is still to reach 6.5 GW of constructed capacity by 2020. We’re looking into using a portfolio view instead of the usual project-by-project view. That has a large impact on how you choose your sites for the projects and in which order you build them. And when you have this attitude towards the asset projects, you’ll harvest the full benefit of having design, procurement and certification follow standard wind farm specifications with the fewest possible site-specific adaptations.”
Mats Vikholm also emphasises the need for politicians and regulatory authorities of the various nations involved in offshore wind energy to standardise their approaches and legislative demands, too.
“There are pros and cons for each of the frameworks in the various EU member states and it would be great if we could pick the parts from each. For example, the ability to take up a site that has planning consent and a grid connection provided is obviously an advantage in Denmark compared to the UK. This means we have lower risk and so can build projects cheaper. But, that said, the ability to deliver our own grid connections before divesting it to an OFTO in the UK has avoided some of the delays we have seen in other markets.”
“Both Germany and the UK have done much to lay out a clear framework toward 2020, but in all markets, we’d like to see more certainty for offshore wind in the following decade – with stable, long-term conditions for investments that remain valid after 2020. In wind projects with a lifetime of 24 years, this is crucial, enabling us to develop and mature the technologies, reduce production costs, and make a significant contribution to the energy transformation.”
Knowing the extent of the effort required to achieve DONG Energy’s goals, the Danish utility is leaving no stone unturned.
“Cost of energy reduction must come from several areas: From standardisation and efficient, technical solutions. From professional relations with and strategies towards suppliers. And by choosing the right sites, project sizes and effective O&M solutions. Combined, I’m convinced that this will result in significant progress. The path to achieving our target is not without challenges, but I’m convinced that it’s possible. And it’s something we’re working very hard to achieve.”
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