Aqualis ASA (ABL) Earnings Call Transcript

Hello again, everyone. Tough act to follow from the results from Reuben, but I'll give it a go. Very different topics, so looking specifically at an area of the market where the ABL group and specifically OWC, so the part of the group that I look after, is really a leader, and that's floating offshore wind. So I'm the Managing Director of OWC and I look after our global business focused on Offshore Wind and Renewables consultancy. So OWC has been around for a long time, established in 2011, so slightly before the rest of the ABL Group. We've got to have our 10-year party a little bit before the rest of the group. But we're founded by people who have been involved in Windfall Construction since the 1990s when really the industry began. We're a global specialist but with a local presence. So we've got offices in everywhere around the world where there's offshore wind activity happening. And we're starting to broaden that out to other renewables as well, although we're not going to try and be in every country where there's other renewables because that would be, I guess, almost every country in the world at this point. We primarily look at working with developers and investors [indiscernible] engineering, by which we mean taking a scope with a developer and really supporting them to develop that project, being part of the developer's team in lots of different ways. And we also do, as Reuben's mentioned, technical due diligence and LTA and those kind of investor-led services as well. We've got more than 100 people now. We've been growing very quickly and lots of teams around the world. We obviously -- our heritage is in offshore wind, fixed and floating, but we now also look at floating solar wave and total onshore wind, onshore solar, battery storage and hydrogen, so covering kind of the key growth areas for Renewables, and particularly focusing on those that are kind of in the oceans to fit with what we do as a group. So apologies for those of you who already know this, but I wasn't sure what mix we were going to have in the audience. So I'll start with what floating offshore wind is very quickly. So hopefully, you're reasonably or slightly more familiar with fixed bottom offshore wind. So that's where you have an offshore wind foundation that like a fixed oil and gas platform that sits on the seabed. Floating offshore wind is what we mean when we're moving into deeper water. And so that's where you have kind of a floating structure or hull that you can then put your wind turbine on top of. We have a number of different concepts out in the market, and this picture represents kind of the main subtypes. If you use the analogy of a sailing boat, the wind turbine can catches the wind and the hull and turbine wants to tilt over. And then we have to stop that somehow. And so each of these different structures in a slightly different way. So you've got a spar-buoy, which does it much like a sailing boat does with a keel. And then semisubmersible, which is a bit more like kind of a catamaran, so you've got a bigger area in the water to stop it tipping over. But this is really the new part of offshore wind. At the moment, there are only kind of pilot projects and pre-commercial arrays installed around the world. The biggest one being sold at the moment is Hywind Tampen in Norway, which is 88 megawatts. And so when you're comparing to kind of gigawatt-scale projects in fixed bottom offshore wind, obviously, the industry is a little bit further behind. So moving on to more maybe what you came for. So some of the key risks to development of floating offshore wind. I'm going to focus today on supply chain readiness and availability, but I'll run through quickly some of the other key barriers to development as well. So floating offshore wind, savings in oil and gas, the costs in deeper water are higher. So we still have a higher LCOE than we do for fixed bottom offshore wind. And that, of course, means that you need a -- the energy price is more expensive. You potentially need subsidies or some kind of mechanism from governments or off-takers to kind of allow for that higher cost of energy. They're untested technologies. Each component part of a floating offshore wind, the turbines, the concept of the hulls, the concept of the moorings, the cables, they're all tested in their own right. But what we don't have is a wind farm -- commercial wind farm that's been out there for 25 years, we're using all of these technologies together. So there will be some unknown unknowns. Supply chain readiness and availability, so I'll go into in a bit more detail in the following slides. Serial production of foundations, again, were used for oil and gas for building 1 FPSO or 1 big hull for a project, not building 100. And so it's taking that single unit production experience and turning it into a production line to make 100 or more at once. Dynamic cables. We're very used to the fixed cable element of offshore wind running along the seabed, but when we've got a floating platform, we need to have a section that goes from the floating unit to the seabed and that moves around in the water column. And as a lot of people know from the insurance industry, there have been a lot of cable failures in offshore wind anyway. So, of course, this is an area of focus as well. Major component exchange. So if you need to exchange a blade or a gearbox on a turbine, typically that you need a large jack-up to do that. But in deep water, you can't use jackups. And so then you're looking at EVs and something that floats or having to take your unit back to shore to replace the major components. And so there's quite a lot of work going on in the industry at the moment, including by us in joint industry projects to come up with a really efficient way of changing those major components if they fail over their lifetime. And finally, long-term performance. Again, we don't have a commercial scale wind farm in the water in floating offshore wind. So I'm sure there will be some things that we'll learn during the life. And we don't know exactly what the long-term performance is. But Hywind Scotland, for example, has been performing really well and better than some of its fixed bottom counterparts. So the signs are looking good so far. So why is -- for the supply chain in particular, why is floating offshore wind different? Just some things are the same or very, very similar. So you can get your turbine, for example, those just come off the production line and the same production line as we use for fixed bottom offshore wind. Same with onshore substations, transformers, the fixed elements of the cables, those are all the same. But we have some areas that are very different. So particularly ports, we need somewhere with the ability to kind of launch these pretty large footprint foundations. And again, we're talking about a fair commercial scale wind farm, 100 or more of these at a time. We also need ideally deep key sides with a high bearing capacity so we can install the turbines in the port. There is a real benefit of floating offshore wind as you don't necessarily need a big jack-up offshore installing your turbines. Hopefully, you can do it alongside the key side with a land-based crane. But those large land-based cranes, there's only a couple of them in the world. Those -- that most of our key sides don't have the bearing capacity and don't have the water depth and the scale we need to do this in kind of a production line mentality. Take 1 unit, kind of move it along the key side doing different steps, for example. And we don't have enough of those key sides available around the world. As I mentioned before, serial manufacturing of these large hulls, potentially dry dock space. Dry docks, for the most part, have been designed to fit something that's the shape of a ship. These are not the shape of the ship. And so we need some different things there and specialist technical skills. So in fixed offshore winds, we haven't been dealing with moorings, we haven't been dealing with their flexible cables. And we can take experience from oil and gas and we can take experience from a fixed offshore wind, but we can't just directly copy everything. And I think it is a mistake that people make sometimes thinking that because we've got floating structures in oil and gas, we can just copy and paste. And I think we've shown over the last few years that you can learn but you can't just copy and paste. So there are a lot of opportunities in developing this new supply chain. So we've got port development. Of course, we have ports already, but all of the development activity that's needed to bring ports up to the standards or with the facilities that we need for floating offshore wind can be really beneficial for the local areas those ports are in. So lots of investment in local infrastructure, landside as well as in the port. And as well, we've seen for fixed offshore wind, the country or the area that builds that first big port to service, the industry has really had that first-mover advantage and look at listing in, for example, a large volume of North Sea offshore wind has gone through these few big ports that were kind of the first mover in getting the facilities ready for fixed offshore wind. Job creation. So, of course, any supply chain, there's always going to be jobs associated with that. And again, investment in that local infrastructure. Opportunities for exports. So like everything, again, the first mover, you can -- you then have the opportunity to export to the other markets that are going to be doing floating offshore wind. And manufacturing output, heavy industrial output in the U.K., in Norway around Europe, not all around Europe but a lot of our developed countries has dropped. And so there's an opportunity there to invest in that heavy manufacturing industry as well. So in terms of the opportunity, I know we're in Norway. But in Scotland, we have the ScotWind auction recently. And the good thing in terms of quantifying the opportunity is ScotWind's developers had to submit a supply chain development statement, which quantified how much money they were going to spend on their projects and where they were going to spend it. So these are -- this is billions of pounds. And so these are just the floating projects as well so there's even bigger numbers for all the fixed projects. So they're looking at spending GBP 21.4 billion in Scotland for the ScotWind project. GBP 6.9 billion in the rest of the U.K., GBP 15.5 billion in the EU and GBP 6.2 billion in the rest of the world, and that's just for the floating project. And the floating projects are where we need that development and that new supply chain. So a lot of that will also equate to investment rather than just using our existing capabilities. And that will be replicated in everywhere that we do commercial scale floating offshore wind. It's just that for ScotWind, we happen to have the numbers publicly available because the auction system that we had to publish them. Of course, there are challenges. As I've mentioned, we need those deepwater key sides of high-bearing capacity, lots of onshore space. You've got 100 turbines, that's 300 blades, 100 nacelles, 100 towers. And I don't have a picture. But if you see a picture of the kind of the hinterland of a port where these are all laid out ready for installation, its a lot of acreage that you need to build out an offshore wind project from the port. And we also need sheltered space for floating storage. So once you've got the hulls, you need somewhere to keep them. So you need some sheltered area around your port because you're not going to have room in port for all of these structures. It's going to be a real challenge to provide enough skilled labor in a short period of time. This is something that we know about around the world and the whole supply chain for offshore wind. There are not enough people. There's not enough of anything really for -- to build out fixed and floating offshore wind ambitions. I think we're seeing that in a lot of the energy industry. We need more energy across the board and providing enough of everything that we need to build out all of our energy infrastructure is going to be a challenge. And then if we're talking particularly about Norway, about Europe, competing in terms of manufacturing output with lower-cost economies is going to be a challenge. Of course, there's been difficulties of COVID, but China is really moving in, in a lot of the offshore wind space in terms of offering low-priced components, low-priced foundations, low-priced turbines potentially into the market and putting sufficient investment into our facilities. So if we want to be doing all of this manufacturing, all of this development in Europe, then we need to invest in the facilities now. They're not going to be ready in time, particularly the ports. There's a unique opportunity in Norway. There is an upcoming leasing round for fixed and floating offshore wind. So there's 2 sites that are going to be leased. I'm sure you guys know this already so do it quickly. There's [indiscernible] site, which is going to be a floating development site. It's pretty deep water. Well, again, not by rolling gas standards offshore wind, it's deepwater. It's going to be a qualitative auction process. So people often refer to this as kind of a beauty contest. So developers will submit their proposals for the site, and they'll be selected based on their merits rather than an auction price like you see in the New York by auction recently, for example, where it was solely based on price. The fixed bottom site, the [indiscernible] here, is going to be an auction system. So that's going to be done on price, not on a [indiscernible] contest. Equinor has the advantage that they were kind of a first mover in floating offshore wind, so with the MET Centre Demo site, we had High Wind 1; the TetraSpar Demo, which has just been installed. And there's going to be another 2 projects installed this year as well. And of course, this Hywind Tampen, which is being installed at the moment. And these are really exciting. What Norway really needs to do now with this leasing process is turn our first-mover advantage into proper commercial floating offshore wind projects and fixed offshore wind projects as well. Norway has a great heritage in manufacturing, particularly kind of the [indiscernible] and the gravity-based structures that are in the North Sea. Those were really innovative at the time and I don't think have been particularly repeated since. So this is [indiscernible] when it was ready for [indiscernible] in Norway. And so although we're not going to be building structures quite like that for offshore wind, there's obviously still that kind of heritage of innovation, of skills, of the right mindset for getting these big projects done. Hywind Tampen, of course, is being manufactured in Norway. And there are a number of HVDC topsides that's been manufactured in Norway and taken to projects in other countries around Europe. [indiscernible] is the example I've given here. Prysmian and Nexans, the next on 2 of the major cable suppliers for offshore wind and also have a manufacturing presence in Norway for some of their components. So there is a local supply chain that can be built on and that can be used for the Norwegian projects. I just highlighted a few of the ports that have the potential to support floating offshore wind. So yes, there's quite -- as you'd expect to know, there's quite a lot of deepwater in the fields and deepwater ports. So that's perfect for floating offshore wind, that's exactly what we need for that integration piece. There's obviously quite a number of fabrication facilities from that oil and gas heritage as well and quite a lot of dry docks. But of course, that we need to look at the size and how these can be better use of floating offshore wind. And I think for serial production, the general feeling for floating offshore wind is that the dry docks probably won't be the solution in the end, but for demo projects and smaller scale developments, they're still very useful. So Hywind Tampen, the spar-buoy, so these are the long cylindrical structures that act a bit like a keel. And the fabrication -- their fabrication in concrete, they were slipformed. Fabrication was started in store and they were towed then to -- and I'm not going to try and pronounce it, this place. Someone good time we had to say later, I should take that earlier. And the slip forming was finished and then all the fit-out was carried out. And so that proves exactly that it can be done in a way. This is a pre-commercial array. This is showing electrification of oil and gas assets, which is something that we're looking at in the Gulf, we're looking at the U.K. side of the North Sea, it's something that's going to be really relevant to kind of export that knowledge and that know-how to other parts of the world and for, hopefully, other projects in Norway as well. And people. I think it all comes together with the people. You can have all the great facilities and the manufacturing and the auction system, but you need people to do it all. And I've discussed already, obviously, the heritage and everything that we've got in Norway. And with oil and gas, this is from GWEC from the 2022 wind report, where they did quite an in-depth analysis of which skills we can transfer from oil and gas to offshore wind. And there are some big chunks there, in here, where we've got really good skills overlap. We can take people who've been working oil and gas and they can move right over into offshore wind with a little bit of support to get into the industry. There's a really big chunk here where we've got some overlap. And that's where we need to be thinking about a little bit more training, accepting that people will be a little bit less efficient as they start working in a new industry. But they can still move over pretty effectively. And then some other areas here where there's less overlap and -- or less need in offshore wind for those skills like drilling, for example, not something we're really into an offshore in drilling for oil and gas. But as well as taking people over from oil and gas, you also need to be looking at other industries. As I said, we need more people in energy. We need to bring people into the industry. That also means recruiting graduates and apprentices, training those young people up. If we're talking about an offshore wind pipeline that for projects now that really kind of kicks off in 2030, for projects that are in planning at the moment, like those ScotWind projects, for example, the people building those projects, they might just be starting university. So we need to make sure that those people are coming into the industry as well. And everyone in our industry needs to play a part in this. We all need to be working on inspiring the next generation and really training those young people who are so passionate about working in Renewables. We've got some interns in our London office at the moment. And I was eating lunch with them the other day, and I felt completely ostracized because I was eating meat. And then they were all vegan. It is a generation thing and they're all so passionate about the environment and about working in Renewables and really making our world a better place, and we need to tap into that. So what next? It's really key that we need clear government commitments for project pipelines. If we're going to build ports, if we're going to build heavy manufacturing, we need a project pipeline to give investors in those facilities confidence that they're going to be used over a number of years and that they're going to get a return on their investment. We're starting to get that in a lot of markets. Norway obviously has some ambitions, but maybe not a clear pipeline on exactly when all those auctions are going to happen. So that will need to come. We need collaboration between developers and the supply chain. It's often -- procurement is often done on a very competitive basis. I think particularly for these floating projects in the early days, we're going to need to see a lot of collaboration between the developers and the supply chain. Because we need to make sure that the supply chain is developed in the right way, we need to make sure that there's that pipeline of projects year-on-year. And the developers also have the confidence that the supply chain will be there. So it goes both ways. And yes, the early engagement to make sure that the investment is targeted correctly. It's no good if we build out a port to service floating offshore wind and turns out it doesn't quite meet the needs of the developers. So people like us, like OWC, we're working with developers in those early stages using our marine heritage from ABL. And those guys who've been working in marine warranty on all of the early floating projects, using those guys who've been at sea for years and years and know how all this stuff works, to really bring that expertise into the early stages of projects, to make sure that the projects have been developed sensibly, and then also to be able to go to the supply chain and say, this is how we think we can support you. This is how you can support the developers. This is how the infrastructure can best be developed to really service the market. And I think it's also really important to -- when you're developing these products to limit some of the technology and design choices to make sure that the supply chain that's available isn't excluded, especially at the moment when the supply chain isn't quite there for the commercial scale floating offshore wind projects. How can we make sure that there will be a local port that can service the project? How can we make sure that there will be local supply chain and some way to build the project. And so it's about developing the project to fit the available supply chain as well as designing a supply chain to fit the project. And lastly, a really important point. So this is a graph of projected floating offshore wind installations again from GWEC. Our existing pipeline of projects does not provide enough floating offshore wind to meet our net 0 ambitions. If you do the kind of the top-down and the bottom-up of the pipeline that we've got, and the top down of what we need to support net 0, there's not enough projects in the pipeline. So even what we already think of as ambitious in really stretching the market isn't going to be enough. So there's a lot of work for us all to do. I'm quite excited about it, and I hope some of you guys are as well. So we also have recently written a report with The Catapult in the U.K. looking at floating offshore wind markets around the world and doing a deep dive into which markets the next -- are going to be next for floating offshore wind or should be next for floating offshore wind. You can download that from The Catapult's website and there's a link there, and we'll share the presentation afterwards if you want to have a look at that. Other than that, are there any questions?

Could you share some color on the competition here? Who are your main competitors on offshore wind and floating offshore wind, engineering and consulting?

I think it's probably the kind of the usual suspects, people -- in terms of offering those owners engineering services, people like K2 who offer kind of quite similar services to those that we do in the due diligence space, [indiscernible], for example. I think we've been involved in a really large percentage of the early floating offshore wind projects. And we think anyway that we're kind of a real market leader in the floating offshore wind space. And having that ABL Group heritage in everything that floats really gives us a leg up in that arena as well. Yes, so having the OWC side expertise on the fixed offshore winds, bringing in that floating heritage from oil and gas from the maritime industry has really been powerful for us.

And do you have a view of what is the best floating turbine technology? Or are you sort of agnostic when it comes to advising developers?