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Huge boost for renewables as offshore windfarm costs fall to record low Huge boost for renewables as offshore windfarm costs fall to record low
(about 7 hours later)
Offshore windfarms will be built for a record low price in the UK early next decade, after developers bid far more aggressively than expected for a multimillion-pound pot of government subsidies. Campaigners and party leaders have called on ministers to rethink their support for a fleet of new nuclear power stations after offshore windfarms secured a record low subsidy price.
Industry watchers had expected the guaranteed price for power from windfarms around Britain’s coast to come in somewhere between £70 and £80 per megawatt hour, below the £92.50 for a new nuclear power station at Hinkley Point.
But the “exceptionally low” results of a government auction on Monday for subsidy contracts show two offshore windfarms will be built for £57.50 per MWh, way below even the most extreme predictions. The price is half of what new offshore windfarms were being awarded just two years ago. Developers of new windfarms around Britain’s coast in the early 2020s will receive an “exceptionally low” £57.50 per megawatt hour of power under the results of an auction of government subsidies, announced on Monday.
Ministers said the subsidies, paid for by consumers on energy bills, would bring forward enough clean power for 3.6m homes and create thousands of jobs. The “breathtaking” figure is around half what they were awarded just two years ago, and far below the £92.50 committed last year for the Hinkley Point C power station.
Vince Cable, leader of the Liberal Democrats, said the breakthrough should prompt a rethink of the government’s energy plans.
“The spectacular drop in the cost of offshore wind is extremely encouraging and shows the need for a radical reappraisal by government of the UK’s energy provision,” he said.
Experts hailed the results as evidence that large scale renewables had come of age in Britain.
“The epoch of renewables as the most cost competitive technology has arrived,” said energy analysts Corwnall Insight, while The Economist Intellgience Unit said they showed “the trajectory of cheaper renewable technologies is irreversible.”
Ministers said the multimillion-pound pot of subsidies, paid for by consumers on energy bills, would generate clean power for 3.6m homes.
Richard Harrington, the energy minister, said: “The offshore wind sector alone will invest £17.5bn in the UK up to 2021 and thousands of new jobs in British businesses will be created by the projects announced today.”Richard Harrington, the energy minister, said: “The offshore wind sector alone will invest £17.5bn in the UK up to 2021 and thousands of new jobs in British businesses will be created by the projects announced today.”
As well as a major boost for renewables in the UK, which have suffered from government subsidy cuts in recent years, today’s auction has fuelled a debate over whether ministers should rethink their commitment to new nuclear power to meet the country’s carbon targets. As well as a major boost for renewables in the UK, which have suffered from government subsidy cuts in recent years, the auction fuelled calls for ministers to rethink their commitment to nuclear power as a key way to meet the UK’s carbon targets.
The Green party said the results should sound the death knell for Hinkley Point C, which is being built by EDF in Somerset. The Green party and environmental group WWF said the results should sound the death knell for Hinkley Point C, which is being built by EDF in Somerset.
Caroline Lucas, the party’s co-leader, said: “This massive price drop for offshore wind is a huge boost for the renewables industry and should be the nail in the coffin for new nuclear. Caroline Lucas, the party’s co-leader, said: “This massive price drop for offshore wind is a huge boost for the renewables industry and should be the nail in the coffin for new nuclear.”
“While clean, green wind power has the potential to seriously cut people’s bills – the government’s undying commitment to new nuclear risks locking us into sky-high prices for years to come.” Green Alliance, a politically centre-ground thinktank, said the nuclear industry now had to cut its costs or face the fate of carbon capture and storage (CCS) for fossil fuel plants, a technology that ministers previously supported but ditched in 2015.
Unlike Hinkley, where the price was agreed in negotations between EDF and government officials, the offshore windfarms’ backers had to compete in a reverse auction for the lowest guaranteed price, known as a contract for difference. “The challenge for nuclear is they now need to drop their costs or risk being in the same situation as CCS,” said Dustin Benton, the group’s executive director.
The lower the price, the more electricity generating capacity can be built. The government had allocated £240m-a-year for the subsidies but the competitive prices mean it now expects them to hit £176m-a-year at most. The auction results are extremely unlikely to affect Hinkley being completed. But they pose a serious dilemma for EDF and consortiums hoping to build other new nuclear power plants around the UK, and are likely to feed into a flagship government review of energy costs out next month.
Most industry watchers had expected future nuclear projects to cost £80-90 per MWh, a long way from the £62.14 average awarded to offfshore windfarms today.
Unlike Hinkley, where the price was agreed in negotations between EDF and government officials, the offshore windfarms’ backers had to compete in a reverse auction for the lowest guaranteed ‘strike price’ in deals known as a contract for difference.
The strike price is a top-up payment above the daily wholesale price, which on average today is around £40 per megawatt hour. The lower the strike price, the more electricity generating capacity can be built. The government had allocated £240m-a-year for the subsidies but the competitive prices mean it now expects them to hit £176m-a-year at most.
The winning developers are Germany’s Innogy, which will receive £74.75 per MWh for Triton Knoll, off the coast of Lincolnshire, Denmark’s Dong Energy at £57.50 for its Hornsea Two project off the Yorkshire coast and Spain’s EDP with £57.50 for the Moray offshore windfarm in Scotland.The winning developers are Germany’s Innogy, which will receive £74.75 per MWh for Triton Knoll, off the coast of Lincolnshire, Denmark’s Dong Energy at £57.50 for its Hornsea Two project off the Yorkshire coast and Spain’s EDP with £57.50 for the Moray offshore windfarm in Scotland.
The higher price for Triton Knoll reflects the fact it will be delivered slightly earlier, in 2021-22, compared with 2022-23 for the other two.The higher price for Triton Knoll reflects the fact it will be delivered slightly earlier, in 2021-22, compared with 2022-23 for the other two.
In total, they will have a generating capacity of 3.2GW, the same as Hinkley Point C, though they should be operational at least two years before the pair of new reactors.In total, they will have a generating capacity of 3.2GW, the same as Hinkley Point C, though they should be operational at least two years before the pair of new reactors.
Matthew Wright, the managing director for Dong Energy UK, said: “This is a breakthrough moment for offshore wind in the UK and a massive step forward for the industry.” The industry body, RenewableUK, called the prices “astounding”.Matthew Wright, the managing director for Dong Energy UK, said: “This is a breakthrough moment for offshore wind in the UK and a massive step forward for the industry.” The industry body, RenewableUK, called the prices “astounding”.
The price of building offshore windfarms has fallen by nearly a third since 2012 as the technology matured, and developers believe that a new generation of even bigger turbines mean they can achieve further cost reductions in coming years. Industry and campaigners used the auction results to pile pressure on the government to commit to a timetable for the further £440m-a-year of subsidies that officials have allocated but which ministers have not confirmed since the general election in June.
Keith Anderson, chief corporate officer of ScottishPower, said: “The government should be pleased the industry has delivered and, with a healthy pipeline of projects ready to go, they should press on quickly with further auction rounds.”
Energy UK, which represents the UK’s big energy companies, also urged the government to provide certainty on timing for future auctions.
“Today’s exceptionally low results are further evidence of how the cost of clean energy is continuing to fall, and the move to a low carbon future is delivered at the lowest cost to consumers,” said Lawrence Slade, the group’s chief executive.
The price of building offshore windfarms has fallen by nearly a third since 2012 as the technology matured, and developers believe that a new generation of even bigger turbines mean they can achieve further cost reductions in coming years. The sector is perceived by investors to be much less risky than it was five years ago, bringing down the cost of capital.
In Germany, some new offshore windfarms have even secured contracts in auctions that are effectively subsidy-free.
“Offshore wind’s success was undoubtedly buoyed by the decreasing costs of capital in the sector and the wider downward trend of subsidy levels witnessed in other European tender processes,” said Robert Marsh of law firm Norton Rose Fulbright.“Offshore wind’s success was undoubtedly buoyed by the decreasing costs of capital in the sector and the wider downward trend of subsidy levels witnessed in other European tender processes,” said Robert Marsh of law firm Norton Rose Fulbright.
Lawrence Slade, the chief executive of Energy UK, which represents the UK’s big energy companies, said: “Today’s exceptionally low results are further evidence of how the cost of clean energy is continuing to fall, and the move to a low carbon future is delivered at the lowest cost to consumers.”
He called on the government to set out its long-term plan for cutting carbon emissions, and to provide certainty around the timing for future auctions. Ministers have allocated a further £440m-a-year for further auctions to be held before 2020, but have not confirmed when these might happen.