In 2014, the UK government announced that developers of renewable energy projects with a capacity of than 300MW would need to submit a ‘satisfactory’ supply chain plan to be eligible to bid for a Contract for Difference. The initiative was widely interpreted as a way of encouraging developers to select UK-based suppliers wherever possible. Indeed, ministers past and present have left developers and suppliers in no doubt that this is exactly what they wanted.
But this is only part of the story. Although the Government was keen to apply pressure on local content without breaching competition law, the Government also genuinely wanted suppliers to raise their game and take meaningful steps to mature the industry. Companies should have competitive procurement practices that don’t just rely on established suppliers. They should be fully engaged in industry programmes to reduce costs. They should also understand what their skills gaps are – and be doing something about it.
BVG Associates has been deeply involved in helping the industry to negotiate the supply chain plans conundrum, working with several developers over the last two years. We have also been working with suppliers, helping them to communicate effectively in their submissions the actions they are taking that have direct relevance to the supply chain plan.
This year, I have reviewed a significant number of suppliers’ supply chain plan. It’s clear that many companies are uncertain about how much work to put in and what to include.
In many respects, it reminds me of teachers’ advice for exams many years ago – read the question and answer it. So, when the guidelines say the Government wants to know how you are lowering barriers to new entrants, you explain just this. When they ask you to describe how you are developing new technology, explain what you do, but where possible, keep also using opportunities to stress UK benefit. We also see companies providing quite imbalanced responses, focussing in some areas at the neglect of others, which does not help developers to provide a rounded response to Government.
The problem is that some companies seem paralysed by the thought that the whole exercise is an elaborate trick question and, if there aren’t any UK suppliers they can use, the best thing is to ignore the process completely or dash something off quickly to try keep the client happy. This is a dangerous game as developers often formally assess these plans as part of their procurement process. Others have taken a more intelligent and progressive approach. They don’t see the supply chain plan process as just another hurdle to be negotiated but as a challenge to change what they do and an opportunity to communicate their good practice and to show how they add value. Some suppliers recognise that their activities in the UK are more limited than they could or should be. They understand that the UK is the largest offshore wind market and there are many excellent companies and industry programmes. By committing to work harder in the UK, therefore, they are not simply playing a political game to gain favour but are investing in initiatives that make them more competitive.
The local content angle still matters, of course. All UK offshore wind farms now need to report their UK content following final investment decision. At the supply chain plan stage, developers will be keen to understand what impact their procurement decisions will have on the final figure and may choose to publish a figure in their supply chain plans. It is important therefore that suppliers become acquainted with the government/industry approved UK content methodology that BVG Associates developed for this purpose.
By working with suppliers to develop their supply chain plan, I’ve found that it is possible to answer the exam questions set by both developers and Government in a clear and effective way, and in doing so, drive new dialogue and create new opportunities. This improves the chances of success for the supplier, the developer and the industry as a whole.