Developers leading the expansion of Britain’s offshore wind farms united this morning in dismay at today’s botched reverse auctions designed to boost necessary new green power capacity.
Allocation Round 5 (AR5) of the now annual process to award ten-year Contracts for Difference (CfDs) attracted no bids from would-be operators of marine turbines, casting doubt on the government’s goal of 50GW of offshore generation by 2030, more than tripling today’s 14GW installed capacity.
Other technologies such as solar and hydro attracted bids totalling only 3.7 GW, against the 11GW of total new capacity secured in last year’s AR4.
Today’s results give the lie to Conservative opponents of onshore turbines in the media & on Parliament’s backbenches. Nimbys such as former energy minister John Hayes & Craig McKinley argue that English landscapes don’t need the structures if the decade-long boom in marine installation can be made to continue.
“This is a wake-up call for Government”, said ScottishPower CEO Keith Anderson, ”and a multi-billion pound lost opportunity to deliver low-cost energy for consumers“.
“ScottishPower is in the business of building windfarms and our track record is second to none in terms of getting projects over the line when others haven’t been able to. But the economics simply did not stand up this time around”.
Analysts Cornwall Insight pointed to a administrative strike price (ASP) of £44 per MWh for marine turbines, left unchanged by the energy department since last year’s AR4 success, as being too low for installers of to recoup development costs.
Britain’s stubbornly high inflation, apparently defying Sunak’s attempts to halve it this year, and consequent high capex costs, defeated that level of ASP, the consultancy concluded.
Adverse conditions in Britain’s economy have already led, the analysts noted, to developer Vattenfall halting construction of its 1.4GW Boreas wind farm off Norfolk, a winner in last year’s reverse auctions.
Last month Vattenfall President and CEO Anna Borg said its development costs affecting Boreas had risen by around 40%, with unstable world politics putting supply chains under pressure.
“It’s imperative for the government to reassess certain structures of the CfD scheme, to determine the optimum approach for continued deployment of renewables, said Alex Asher, a senior consultant at Cornwall Insight.
”CfDs are a substantial tool for providing investor certainty.. and successful in allowing the deployment of large-scale renewables as well as helping to reduce consumer costs in periods of high wholesale prices”.
“Whilst alternative routes to market are open to these technologies, they are far more challenging”, Asher observed.
Developers had been innovating and improving efficiencies to ensure projects were delivered, but the auction was not seen as an economically viable option for several developers, leaving some projects without a clear path to market”.
Richard Sandford, co-chair of consultative body the Offshore Wind Industry Council, observed that more than five million British homes could have been powered for a year from new capacity provided if all the offshore projects eligible to bid into AR5 auction had done so.
“Lessons must be learned to ensure that the parameters of the auction are set correctly in the future, said the wind industry boss.
“The offshore industry’s continued focus is working closely with the Government to reform the auction process so that we can secure far more capacity next year and beyond”.
“Hugely concerning” was the verdict from nPower Business Solutions on AR5’s failure to award any new offshore wind CfDs.
The supplier’s chief operating officer Anthony Ainsworth noted the 3.7GW rewarded this year across solar, onshore wind, tidal and geothermal is the lowest total since 2017, at a time, said Ainsworth, when new clean capacity should be increasing, not slowing.
“For businesses, buying their power from renewable sources is crucial to help them meet their net zero targets, lower costs and achieve greater energy resilience”, said Ainsworth.
“Demand is already outstripping supply, so it’s clear that the CfD scheme needs reassessing to keep the UK’s energy security and Net Zero plans on track.”
For the Association for Renewable Energy and Clean Technology, Mark Sommerfeld, its deputy director of policy viewed the CfD round as a “mixed bag”
“The lack of offshore wind projects is a notable setback”, the REA man observed. “It calls into question whether the government target of 50 GW of offshore wind …is achievable. It is a stark reminder that the government must address diminishing levels of UK investor confidence.
“There was also good news” the lobbyist continued. “The first three geothermal projects clearing the auction are an important milestone for a technology that has long had significant potential in the UK.
“Record numbers of tidal projects and large amounts of solar and onshore wind are also good news, a reminder that we require a wide variety of technologies to get to Net Zero.
“Despite increases in overall clearing prices, this auction demonstrates that renewables remain the cheapest form of generation”, Sommerfeld deduced.
“The Government must now use the Autumn Statement to ensure the next auction appropriately responds to increased development costs and attractive foreign investment markets, that are seeing renewable and clean technology finance diverted from the UK.”
A lot of groups claim that fossil fuel usage can be reduced by using more renewable energy.. Since May 2023 the builders of windfarms have been demonstrating that the strike prices set have been to low.
The industry is now likely to reduce its future investments.
In contrast, Centrica has contracted to take delivery of around 14 LNG cargoes per year and could provide enough energy to heat 5% of UK homes for 15 years. The deal, with a market value of $8bn, marks an additional move by Centrica to build further resilience in the UK’s energy security.. [media release July 2023]