Every third day until Christmas, we will reveal three evaluation markers to improve your company’s odds for success in offshore wind. As a special Christmas reflection, each release will also contain a strategic observation from the global offshore wind scene.
The Christmas Calendar structure reflects the Green Ducklings framework that we use to map any company’s “Offshore Wind DNA” through our 24 DNA Markers.
#19 STANDARD OFFERING
Standard Offering is a measure for a company’s ability to make cost efficient deliveries while at the same time controlling risk of serial defects. Most other offshore industries are mainly governed by risks, and cost is of less relevance due to the deliveries normally being customized to each application. In this regard, Offshore Wind is quit different as the number of wind turbines in each windfarm are many, and a serial product mindset is needed to lower cost and increase quality in parallel. In other words, a company’s ability to provide a best-practice standard offering determines the order intake (cost competitiveness) as well as the profits (ability to manage risks). The more excellence in standardizing offerings means the less suppliers will need to adapt to client requirements at no-payment premiums.
#20 LEGAL FRAMEWORK
Legal Framework is a measure for a company’s ability to influence the contractual conditions that are applied to their client contracts. By knowing which overall legal terms are considered normal industry practice, a supply chain company can lower the risk of accepting a “too high” contractual exposure. As for other industries, the contractual terms depend on the negotiation power, the extent of framework agreements and not least the Perceived Risks (#9) of the client. Companies with little or no Track Record (#6) in Offshore Wind or providers of novel technologies (#2) have a higher perceived risk. Therefore, such companies should be prepared to meet contractual terms that are above normal industry practice. In other words, effort should be made to reduce the perceived risks by other means – for instance insurances.
Scalability is a measure for a company’s ability to scale their delivery model to commercial wind farm scale, without meeting constraints or bottlenecks. Companies that are accustomed to delivering to other offshore industries are often surprised by the output required to meet the wind farm’s delivery schedule. Sufficient capacity in the organization, efficient machines and storage facilities become important to meet the expected output – even for smaller wind farms. If the production cannot be convincingly scaled to meet the time schedule of the project, the supplier will often be disqualified, due to knock-on effects and potential delayed revenue streams for the client’s investment.
CHRISTMAS REFLECTIONS FROM THE MARKET
New wind farms are constantly increasing in size. Due to the economy of scale that is needed to continue driving costs down, most future wind farms will be in excess of 1GW. In new markets, we often see that small windfarms, consisting of very few positions, are used to pave the way for commercial scale wind farms. This approach is chosen by developers to de-risk permitting, since national framework, local stakeholders and local supply chain performance are uncertain. Such smaller projects can become very important references for local supply chain companies, as they can build knowhow and track record by use of their existing assets and competences. Building such a Track Record can prove valuable in decreasing the perceived risk of a supply chain when commercial-scale wind farms are built as a next step.