Research by Imperial College London suggests that the latest round of offshore windfarms to be built in the UK could reduce household energy bills
The most recently approved offshore wind projects in the UK will most likely operate with ‘negative subsidies’ – paying money back to the government, according to research published by Imperial College London.
This will help reduce household energy bills as the offshore windfarms start producing power in the mid-2020s. The findings were published in Nature Energy.
Lead researcher Dr Malte Jansen, from the Centre for Environmental Policy at Imperial said, “Offshore wind will soon be so cheap to produce that it will undercut fossil-fuelled power stations and may be the cheapest form of energy for the UK.
“Energy subsidies used to push up energy bills, but within a few years cheap renewable energy will see them brought down for the first time. This is an astonishing development.”
The analysis for five countries in Europe, including the UK, focused on a series of government auctions for offshore windfarms between February 2015 and September 2019. Companies that want to build windfarms bid in the auctions by stating the price at which they will sell the energy they produce to the government.
These are known as ‘contracts for difference’ or CfDs. If a company’s bid is higher than the wholesale electricity price on the UK market once the windfarm is up and running, then the company will receive a subsidy from the government to top up the price.
However, if the stated price is less than the wholesale price, then the company will pay the government back the difference. This payback is then passed through to consumer’s energy bills, reducing the amount that homes and businesses will pay for electricity.
The UK’s September 2019 auction made the headlines as winning companies said they could build new offshore windfarms for around £40/megawatt hour (MWh) (US$51/MWh) of power. This was a new record set by these windfarms with bids 30% lower than just two years earlier.
While this was an impressive reduction, researchers could only speculate whether this meant offshore wind had become subsidy free or even subsidy negative, because that depends on how future wholesale electricity prices evolve.
The Imperial team analysed likely future electricity price trends and found that contracted price is very likely to be below the UK wholesale price over the lifetime that these windfarms would produce electricity, from the mid-2020s onwards.
The team said these windfarms are likely to be built and run with these costs, since financing is now accessible at lower costs for such projects, owing to trust in the now mature technology.
The researchers analysed similar offshore wind auctions held by governments of five European countries. They found that Germany and the Netherlands have seen some zero-subsidy offshore windfarms winning auctions, but that the UK projects are likely to be the world’s first negative-subsidy offshore windfarms.
Dr Iain Staffell, who also works at the Centre for Environmental Policy at Imperial said, “The price of offshore wind power has plummeted in only a matter of a decade, surprising many in the field. The UK auctions in September 2019 gave prices that were around one-third lower than those of the last round in 2017, and two-thirds lower than we saw in 2015.
“This amazing progress has been made possible by new technology, economies of scale and efficient supply chains around the North Sea, but also by a decade of concerted policymaking designed to reduce the risk for investing in offshore wind, which has made financing these huge billion-pound projects much cheaper.
“These new windfarms set the stage for the rapid expansion needed to meet the government’s target of producing 30% of the UK’s energy needs from offshore wind by 2030. Offshore wind will be pivotal in helping the UK, and more broadly the world, to reach net-zero carbon emissions with the added bonus of reducing consumers’ energy bills.”
‘Offshore wind competitiveness in mature markets without subsidy’ by Malte Jansen, Iain Staffell, Lena Kitzing, Sylvain Quoilin, Edwin Wiggelinkhuizen, Bernard Bulder, Iegor Riepin and Felix Müsgens is published in Nature Energy.
Riviera held a series of webinars on offshore wind in June. These are available to view in our webinar library