Offshore wind power ‘so cheap' it could lead to cuts in consumer fuel bills

Renewable energy projects, including onshore and offshore wind and solar farms, have so far been subsidised by government support schemes. This has led to some to complain that clean energy is pushing up bills.

But the a new study says that the most recently approved offshore wind projects will most likely operate with ‘negative subsidies’ – paying money back to the government. That money should then go towards cutting household energy bills as the offshore wind farms start producing power in the mid-2020s.

READ MORE: Renewable energy push has fresh wind in its sails

Lead researcher Dr Malte Jansen, from the Centre for Environmental Policy at Imperial, said: “Offshore wind power 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.”

Crown Estates Scotland has launched the first offshore wind leasing round in a decade, identifying areas of seabed off Aberdeenshire, Moray Firth, Orkney, Lewis and Argyll for potential sites in the Scottish Government’s draft Sectoral Marine Plan for Offshore Wind Energy.

ScotWind, the first leasing round for 10 years, is expected to unlock some $8 billion of investment and result in the development of ten commercial wind farms off the coast of Scotland.

Renewable energy firmsBayWa r.e., Belgian operator Elicio and French firm Ideol have already formed a consortium to bid for offshore wind farm sites in the new ScotWind leasing round.

German-based BayWa r.e. already has 75 employees in Scotland and manages 890MW of UK onshore wind projects including the 50MW Druim Leathann on Lewis and 25MW Crookedstane in Lanarkshire.

The new analysis for five countries in Europe, including the UK, focused on a series of government auctions for offshore wind farms between February 2015 and September 2019. Companies that want to build wind farms 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 wind farm is up and running, then the company will receive a subsidy from the government to top up the price.

But 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 wind farms for around £40 per megawatt hour (MWh) of power. This was a new record set by these wind farms with bids 30 percent lower than just two years earlier.

The researchers say that while this was an impressive reduction, at that time they 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 team have now analysed likely future electricity price trends and found that the contracted price is very likely to be below the UK wholesale price over the lifetime that these wind farms would produce electricity, from the mid-2020s onwards.

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 wind farms winning auctions, but that the UK projects are likely to be the world’s first negative-subsidy offshore wind farms.

Dr Iain Staffell, from 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 wind farms set the stage for the rapid expansion needed to meet the government’s target of producing 30 percent 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.”

The research says that one reason the price of offshore wind has fallen so rapidly is technology development, in particular the ability to build larger wind turbines further out at sea. Larger turbines can harness more wind energy and have access to more consistent wind speeds at higher altitudes.

The biggest wind turbines under construction have rotor diameters of 220 metres – twice the diameter of the London Eye.

At the same time, wind farms are getting larger; the newest wind farm in the Dogger Bank region of the North Sea has the same installed capacity as Hinkley Point C and is expected to produce about two-thirds of its annual electricity.

The study says that the success of UK offshore windfarms, which are now primarily built in the Dogger Bank also means the UK has considerable skills and expertise than can be exported around the world.

The researchers also say this success means even more ambitious projects may now be attempted at offshore wind farms, such as producing hydrogen fuels using the wind power on site, out at sea. Hydrogen fuels could be another key technology in helping decarbonise the UK, by replacing petrol used in transportation and natural gas used for heating homes.

In 2010, a Scottish Government report stated the offshore wind sector alone offered the potential for 28,000 direct jobs and a further 20,000 jobs in related industries, as well as £7.1bn investment in Scotland by 2020.

The Scottish Government’s low carbon strategy described the large scale development of offshore wind as representing the “biggest opportunity for sustainable economic growth in Scotland for a generation” with Scotland having an estimated 25% of Europe’s offshore wind potential.

But in February, it emerged that it had in fact created just six per cent of the 28,000 direct jobs predicted. Official estimates stated that there were just 1,700 full-time jobs in the offshore wind sector in Scotland, a fraction of the numbers projected by 2020.

Onshore wind – the cheapest form of new power generation – currently provides more than 70% of Scotland’s renewable energy capacity (8,357MW out of 11,891MW).

But there are other major projects in the pipeline.

Swedish energy giant Vattenfall have unveiled plans to build two more wind farms in Scotland - as part of a renewables revolution.

The proposed developments in Dumfries and Galloway could together produce enough electricity to annually power around 300,000 homes.

Vattenfall, which was awarded a multi-million-pound contract for the construction of South Kyle Wind Farm, said it submitted a scoping report to the Scottish Government this month. The project is expected to complete by 2023 and will be able to power around 170,000 homes, saving nearly 300,000 tonnes of carbon emissions annually.

The Whiteneuk Wind Farm project would be built around three miles south of Moniaive and consist of up to 35 wind turbines with a blade tip height of up to 250m.

The Quantans Hill Wind Farm project, north-east of Carsphairn village, would have up to 21 wind turbines. 

A Department for Business, Energy and Industrial Strategy spokesman said: “The offshore wind sector is a major British success story, with the UK now home to the world’s largest wind farms powering millions of homes each year.

“Today’s report shows there are further benefits coming down the track, with offshore wind playing a key part of our drive to provide cleaner, greener electricity and create hundreds of thousands of green collar jobs in the supply chain.”