A commitment to hold regular auctions for renewable energy every two years will help drive further cost reduction in the UK's world-leading offshore wind industry
As highlighted in a recent comment on the OWJ website, lumpy policy kills industries. Stable support allows them to thrive. Ask anybody in any industry what they most need and stable regulation, that enables steady growth and creates confidence among investors is surely at the top of the list.
That was certainly the key message that came through loud and clear at the Westminster Energy, Environment & Transport Forum Keynote Seminar, which took place in London on 12 July 2018. Stable policy and regulation support the expansion of renewable energy and helps to drive down costs, so the UK Government’s decision to commit to holding biennial auctions for renewable energy, announced a matter of weeks after the event, was especially welcome, and has been applauded throughout the offshore wind industry.
The announcement follows last year’s successful CfD auction which saw the cost of power from new offshore windfarms fall by 50%, making it one of the cheapest options for new power in the UK – lower than the cost of new gas and nuclear power.
As Kenneth Addly and Alexander Hadrill, lawyers at Bryan Cave Leighton Paisner explained on the OWJ website, offshore wind is likely to dominate in the biennial auctions that seem likely to take place in 2019, 2021, 2023 and, potentially 2025. That gives industry just the right kind of signal it needs – that there will be sufficient volume of work in the next decade to make investing in developing new technology worthwhile. Cost reduction of the type that has already spurred the roll-out of offshore wind energy in the UK will continue apace as a result.
The clear pipeline of projects provided by the Department for Business, Energy & Industrial Strategy could allow for as much as 8 GW of offshore projects to be built in the UK. To put it in perspective, at the time of writing, the UK had installed around 7.5 GW. Over the period that that 7.5 GW has been built, costs have fallen by 50-60%. A commitment to another 8 GW will enable them to fall even further.
British success story
Announcing the commitment, UK energy and clean growth minister Claire Perry said regular auctions will encourage long-term investment to help further reduce the cost of energy. Announcing a raft of measures on a visit to the Offshore Renewables Catapult, the minister said “For the last decade the offshore wind industry has been a great British success story, increasing productivity, raising earnings and improving lives in communities across the UK. Today the sector gets the certainty it needs to build on this success through the next 10 years.
“With wind turbines already providing 15% of the UK’s electricity, today’s fresh vote of confidence in the sector will secure its position as a global leader in a thriving industry, enhance confidence and encourage businesses to make long-term investment.
Responding to the decision, Offshore Wind Industry Council and UK country manager at Ørsted, Benj Sykes said “As well as cost-effectively reducing carbon emissions to meet our climate change targets, the offshore wind industry is powering the clean economy, bringing investment, skilled jobs and supply chain opportunities to businesses up and down the UK.
“Our sector has proposed a transformative ambition to deliver at least 30 GW by 2030, enough to meet more than a third of the country’s electricity needs, which in turn could increase exports five-fold, create thousands of skilled jobs and reduce electricity system costs. Today’s announcement is a vote of confidence in our industry and will directly enable more investment in the UK.”
RenewableUK has welcomed an announcement by the Department for Business, Energy and Industrial Strategy on new auctions that will secure renewable energy sources and see the UK’s offshore wind capacity nearly double over the next decade.
Welcoming the announcement, RenewableUK’s chief executive Hugh McNeal said “This is a ringing endorsement by government of the UK’s world-leading offshore wind industry and its ability to deliver for consumers, businesses and British industry. Our ambitions for offshore wind is a win-win for consumers, as the industry’s success at cutting costs mean that offshore wind is now one of the cheapest options for new power in the UK.
“The announcement confirming the budget and timing of new auctions sets us on the path to deliver the tens of billions of pounds of investment that will be needed to meet our ambition of at least 30 GW by 2030. This is good news for the domestic supply chain which can look forward to a pipeline of new offshore wind projects that will support tens of thousands of jobs across the UK.
Scottish Renewables deputy chief executive Jenny Hogan said, “confirmation that next year’s auction will take place in May and the schedule laid out for future rounds provides much-needed clarity to Scotland’s renewables industry. Developers and supply chain companies across Scotland can now plan for projects over the next decade with more certainty.
“The CfD framework has already helped cut the cost of offshore wind by 50% compared to the previous auction round, and these new auctions will be open to a wide variety of less-established technologies at different stages of maturity. To help UK businesses reach their full potential and realise government’s industrial and clean growth ambitions it’s vital that all innovative technologies are able to benefit from this cost reduction pathway and to compete meaningfully in auctions using the regulatory tools BEIS has at its disposal.”
Ørsted UK managing director Matthew Wright said “We are really excited by this announcement. The UK has gained its status as the global leader in offshore wind by industry and government working together to give businesses the confidence to invest in projects, which have consistently been delivered on time and on budget. Through contracts for difference, the industry has slashed its costs, led by projects like Hornsea Project Two, which recently won an auction at the lowest ever price for offshore wind in the UK, halving the auction prices seen just two and a half years earlier.
Vattenfall UK country manager Danielle Lane said, “Providing visibility of future auctions will help support investment in clean growth and further drive down the cost of offshore wind.”
Danish costs falling more quickly than previously anticipated
New analysis suggests that Danish offshore windfarms entering production in 2020 will do so at a cost of just €46 (US$54) per megawatt-hour.
The Danish Energy Agency said an open source levelised cost of energy (LCoE) calculator it has developed indicated that offshore wind is gaining in competitiveness with conventional generation and that offshore wind’s LCoE has already fallen further than earlier estimates suggested. “The improved calculator shows that cost reduction in some core renewable energy options is greater than expected,” said the agency.
This is especially true of offshore wind energy, as a result of a combination of lower capex and declining opex and technology improvements that allow new offshore wind projects to ‘harvest’ more energy at lower cost.
“This means that the LCoE for a Danish offshore wind project is expected to fall to €46/MWhr, excluding grid and system costs, for production starting in 2020,” the agency said.
Compared to previous assumptions capex has fallen by close to 40%. Improvements in operations and maintenance have reduced opex by more than 20%. At the same time, said the agency, improvements in design have increased production from Danish offshore wind projects by 10%, giving a capacity factor of more than 50%.