Could falling offshore wind costs change the energy make-up of our region?
- Credit: Eastern Daily Press © 2006
Dramatic falls in the costs of offshore wind projects have moved the industry closer to a potentially subsidy-free future - which energy experts believe could unlock further projects in the region.
Improvements in technology and the logistics of the sector have seen costs drop faster than industry predictions, with the latest round of government subsidies coming in 50% down on 2015.
The strike-price for offshore wind – used to set the subsidy – dropped as low as £57.50/MWh for projects in 2022/23, such as Hornsea Project 2, and to £74.75/MWh for farms scheduled for commission in 2021/22 (in comparable prices to 2015).
Simon Gray, chief executive of East of England Energy Group, said: 'I think this is a watershed moment for offshore wind. The ultimate moment will come when it becomes subsidy-free and I think we are now well on the way to that.
'What we are now going to see is more of these projects happening and that means more jobs and more opportunities in this region. The world will look to this region because this is where the technology is being developed, and this is where the skills are. We are at the forefront of it.'
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But Jonathan Reynolds, director of energy consultancy Nautilus Associates, said the low cost of wind energy would not spell the end for nuclear power, despite the Hinkley Point C plant in Somerset receiving subsidies of £92.50/MWh. He said: 'Offshore renewables cannot provide the stable base load of energy that we need, which is currently generated by nuclear power.'
But he added improvements made to the electricity network across the UK as well as in storage and battery technology meant offshore wind could play an increased role in the future.
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EDF Energy, the firm behind Suffolk's Sizewell C reactor, which has yet to agree a subsidy, said nuclear power would play a part in the future alongside increasing amounts of 'intermittent' wind and solar power.
'Falling prices for low carbon technologies show that electricity market reforms are working as intended,' said a spokesman.
'Early projects were more costly, but as technologies have matured, developers can achieve lower costs. Now Hinkley Point C has restarted new nuclear, future projects such as Sizewell C will do the same.'
Bigger turbines, higher voltage cables and lower cost foundations, as well as the growth in the UK supply chain, have contributed to the falling prices.
Tim Dixon, Cornwall Insight wholesale team leader, said: 'For offshore wind projects, costs largely depend on the distance from shore because turbine foundation costs increase rapidly with greater water depth. However, offshore wind turbines are generally much larger than land-based turbines, and have been increasing in size over time.
'A typical offshore wind farm commissioned in 2010 would have had a rotor diameter of around 100m, projects commissioning today have diameters of 150m, while projects that won a contract the latest government auction have diameters of up to 250m.
'The larger the turbine, the more power is produced.'
The downturn in oil and gas has also meant more vessels available for servicing renewables.
What are CFDs?
Contracts for Difference (CFD) were introduced by the UK government to encourage energy generators to use low carbon technologies.
Through the Low Carbon Contracts Company, which is owned by the Department for Business, Energy and Industrial Strategy, companies are paid the difference between the strike price – a price for electricity reflecting the cost of investing in the technology – and the reference price, which is the measure of the average market price.
CFDs aim to give greater stability to generators by reducing their exposure to wholesale prices and protect consumers from paying for higher costs when electricity prices are high.
The scheme was initially introduced as part of the Energy Act 2013 with the first round of auctions held in 2015.
In the auctions, projects bid for subsidies by trying to offer the lowest price per megawatt hour (/MWh).
Future50 energy consultancy Cornwall Insight has hailed the arrival of the 'epoch of renewables as the most cost competitive technology'.
Senior consultant Tom Edwards said: 'Even without the added and essential benefit of its zero-carbon footprint, policymakers would – at these prices – be hard pushed not to press ahead with bigger growth in renewables on cost grounds alone, even if there was not a legally binding carbon budget to achieve.
'There could be no greater accolade than that.'
He added the auction prices should come as no surprise as offshore wind auctions on the continent had been clearing at lower than estimated prices for some time.
Mr Edwards said: 'It seems we are now reaping the same benefits of acquired learning and greater efficiency in the wider European offshore wind market, which has a mature supply line, larger turbines and plenty of valuable experience at sea.'