UK falls behind on offshore wind

The UK may have been having issues with some areas of energy, but at least it did look to still be doing well with offshore wind- its flagship green energy programme. However then came the results of the 5th round of the Contract for Difference (CfD) support system. Offshore wind had been tokenly allocated 5GW in that, but in the event no offshore wind projects have gone forward- zero!  

There had been plenty of warnings, not least Vattenfall’s exit from the 1.4 GW Boreas offshore wind project. It had had won a CfD contract for its Boreas project last year at a record low price of £37.35/MWh. But the market has now evidently changed, making it economically unviable for Vallenfall and it seems others, even at the £44/MWh CfD strike price cap initially set for this round.  As noted in my last post, there had been some minor adjustments (a bit more capital head room) to try to keep the show on the road, but to no avail- this round was a complete wipe out for offshore wind.

It was an open goal for critics. Ed Miliband, Labour’s shadow energy security and net zero secretary, said: ‘The Conservatives have now trashed the industry that was meant to be the crown jewels of the British energy system – blocking the cheap, clean, homegrown power we need. Ministers were warned time and again that this would happen but they did not listen’. Sam Richards, the director of Britain Remade, which campaigns for economic growth in Britain, said the ‘catastrophic outcome’ of the auction was ‘the direct result of the government’s complacency and incompetence. This will condemn consumers to higher bills than necessary and means Britain loses out on vital jobs and billions in investment.’ Greenpeace described the outcome of the latest auction as ‘the biggest disaster for clean energy policy in the last eight years,’ because it risked jeopardising the UK’s plan to triple its offshore wind power capacity by 2030, so that it made a 50% power contribution, and cast doubt on Britain’s climate targets and viability as an effective location for major green energy investment.

However, the new CfD round, the first one that’s been on an annual basis, wasn’t all bad. There were nearly 2GW of PV solar projects (56 in all, ranging up to 49.99MW) and almost 1.5 MW of on-shore wind, 25 projects in total, some quite large  (5 over 100MW), although all of them, apart from one in Wales, were in Scotland. The Tory planning block still applies in England- although perhaps not for much longer. With a £52.29/MWh strike price and easier installation, they evidently were seen as more viable than offshore projects in the current context. PV solar, with a strike price of £47/MWh, looked good too.  

There was also some welcome progress on tidal stream power, although on a small scale and with a very high strike price (£198/MWh). Nine tidal projects, ranging up to 11.80MW,  secured record capacity of more than 50MW in all, including four MeyGen projects, two from Orbital and two from Magallane. And for the first time there were also three winning geothermal project, totalling 12MW of capacity, with a strike price of £119/MWh. 

In all though, with the absence of off shore wind projects, only 3.7GW of new clean energy secured a contract this time (compared with 11GW in the previous round), in what was widely seen as a blow to the UK targets, adding maybe £1bn to annual consumer bills since gas would have to be used instead. The recent 40% rise in investment costs due to inflation, reported by the offshore wind companies, had evidently seen them off.  The government could have adjusted the strike price to compensate, but evidently wasn’t prepared to do this. The rise in costs had also of course impacted on the other options (and in other countries), but at the same time some technology costs have been falling- with PV prices reportedly on the decline globally. 

What will happen next in the UK? On offshore wind, the Renewable UK trade lobby said ‘we urgently need Government to provide reassurance that next year’s auction round will offer investable parameters, and that in the longer term a joined-up strategy for maximising the potential of the offshore wind sector is developed. As part of that, the industry needs to see credible plans to evolve the CfD to maximise deployment of our cheapest forms of electricity generation, a commitment to develop and fund supply chain growth and an internationally competitive fiscal regime which attracts capital into the UK’.

In addition though, even before the offshore wind debacle, there were signs that the Conservatives would ease their on shore-wind ban, if locals wanted it. That may now be pushed harder by Claire Coutinho, the new Energy and Climate secretary, who had recently replaced Grant Shapps. However, not everyone was convinced about that really happening. There were also still concerns about how to deal with local vetoes by local individuals or groups opposed to on-shore wind. Big solar farms, usually the cheapest version, may also be blocked with a veto too in the new Energy Act. So there are some planning backlash issues, as well as the future of the offshore wind CfD to consider. And, on the heat side, the proposed hydrogen levy has also been abandoned and there is still uncertainly about heat pump deployment.

So one way or another, energy policy is still in a bit of a mess in the UK at present- although, maybe symbolically, in another part of the forest as it were, the Government has now seen fit to add another £341m more to its support for the proposed Sizewell C nuclear plant, taking its share to £1.2bn. Some things may never change. Although occasionally some evidently do. One irreverent calculation has just suggested that the, still to be activated, Hinkley Point C £92.5/MWh index-linked CfD, if it was reset now and updated for over-run costs and inflation, would come out at £180/MWh. Vastly above solar and wind, even given inflation. You can see why CfDs are no longer used for nuclear… but also why, sadly, tidal power (at £198/MWh) may be a while coming at any scale…

It used to be said that tidal, and perhaps wave, would follow wind to ever lower prices. That may yet happen, as markets build and technology develops. But given the current state of the UK economy and politics, the wind path forward may be more tortuous than expected, with offshore wind, floating systems especially, taking longer to mature. We shall see.  And also whether the UK will still lead on it- and tidal.