Oil and gas sector has much to share with offshore wind

Fast, successful development of the offshore wind industry is vital if the Scottish Government’s ambitious targets for electricity from renewable sources are to be met.

The process may be accelerated by avoiding the reinvention of the wheel and bringing to bear on the embryonic industry lessons learned by the supply chain over almost 40 years of oil and gas exploration and production.

The offshore supply chain has established useful forums to deal with issues as they arise and find better ways of working to improve safety and ensure quality. As many of the practices and skills which have made the North Sea oil and gas industry successful are transferrable to offshore wind, it seems reasonable to expect that some of the existing solutions can be applied to the new sector.

While offshore wind developers might have extensive experience of the practical and commercial problems of developing an onshore wind farm, life in the hostile North Sea, practically and commercially, is very different.

Onshore construction risk tends to focus on issues such as warranties and the implications of poor design or defective engineering. Although these risks are relevant offshore, there are more immediate risks because of cost and availability of resources. It may take months to secure an appropriate and expensive vessel to carry out an offshore construction job and even then weather conditions may threaten timelines.

Offshore there is the potential for catastrophic incidents costing hundreds of millions and contractors will not be keen to go offshore and accept a risk they can’t either insure or absorb. As a result, knock-for-knock contracts have become pretty much the norm in offshore oil and gas construction contracts, which onshore construction lawyers find quite novel. It therefore seems likely that knock-for-knock contracts will be translated into offshore wind replacing the onshore construction contract model.

Financing is another area of considerable difference. Project financing is an increasingly popular method of funding onshore wind developments, with the banks looking for a guaranteed revenue stream at a sufficient level to repay the loan and interest.

The banks examine the commercial aspects of the project – eg cost, timescale, efficiency and output – plus potential breakdowns and the implications of repair.

Banks have become skilled at assessing these risks onshore but there are new factors and risks to work out offshore, in addition to the same risks as onshore on a higher scale because of the increased costs.

Following the way the offshore oil and gas sector standardised working methods, tendering processes and contracts may reduce costs. So too will supply-chain collaboration such as contractors combining to provide a fuller range of services, or linking campaigns with the same or different developers and sharing transportation for people and equipment, and resources for maintenance and construction.

Bond Pearce has extensive experience in the oil and gas industry and renewables, and is hosting a series of forums to bring together wind developers with the offshore supply chain to try to achieve an understanding which will help advance developments for the benefit of the companies and the country.

The oil and gas industry has overcome a lot of problems which are going to be encountered practically and commercially, including contractual difficulties which arise in offshore wind development. It is going to take time to build up confidence between the developers, which are traditionally onshore energy developers, and the contractors – and similarly for the contractors to build confidence in them.

It will also take time to build banks’ confidence that all parties have ironed out potential problems in their projects.

l Finlay Crossan is an energy partner with Bond Pearce LLP, Aberdeen.