Concerns are growing that the government's goal of increasing offshore wind power to 50 gigawatts by 2030 is under threat. Photo: STEPHAN MAE/REUTERS
An industry executive who has led several energy projects warns they can also pump money out of so-called liquidated damages clauses in contracts that pay an agreed amount of money if terms or deadlines are violated. This is true even if the disruption is caused by late delivery of turbines or lack of free ships.
To cut costs, some developers attach turbines to cheaper offshore foundations. floor, adds the manager.
“The sea wind is not Nirvana, as everyone thinks,” they add. “The risks are huge. And the rewards are not very good.
“Everyone is after the biggest turbines, the cheapest foundations, and they have all opted for cabling solutions that mean you could lose the wind farm in the event of a failure.”
Many of these challenges are not unique to the UK . But they are facing internal problems, including a slow planning system and cuts in British subsidies that now look even more stingy compared to those hitting US companies through the Joe Biden Inflation Reduction Act.
The hurdles faced by the industry are expected to be revealed this summer during the government's fifth allocation round (AR5) of the government's Contracts for Difference (CfD) scheme.
CfDs are 15-year subsidy agreements between the Government and energy companies, designed to guarantee stable income for energy schemes.
At auctions, companies set the “strike price” at which they will sell their electricity, and the most competitive bids lead to subsidy deals with the government. When market power prices fall below this strike price, the company's revenues increase, and when it rises above, they make payments to the government. CfDs are funded by fees from consumer accounts.
However, during this summer distribution round, offshore wind is competing with solar and onshore wind, which are cheaper to build. What's more, the maximum strike price for offshore wind power is set at £44 per MWh, a figure that the developers say is unrealistically low.
Energy Secretary Grant Shapps championed the UK as the global hub for offshore wind power. Photo: Victoria Jones/PA Wire
Alistair Phillips-Davies, chief executive of SSE, one of the companies behind Dogger Bank, warned in May that after years of falling CfD costs, policymakers “need to reset [prices], especially with all the supply chain inflation.”
Worse yet, the tough business environment means offshore wind schemes that won contracts last year. round, AR4, are also increasingly at risk.
In March, Duncan Clark, head of Ørsted UK and Ireland, which has received CfD for its 2.8 gigawatt Hornsea 3 development off the Yorkshire coast, said the AR4 deals were an “excellent benefit” for taxpayers, but warned the company was suffering from “an extraordinary combination” of higher costs since then.
He warned that there was a “real and growing risk” that projects could be delayed or even cancelled.
Ørsted is preparing to accept the final investment decision on her project by the end of this year and called on the government to provide “targeted support” to the sector, possibly in the form of tax breaks.
A spokesman for the company claims UK offshore wind has “reached a tipping point”, adding: “Continued attention will be needed… to ensure that offshore wind realizes its potential and becomes the backbone of the UK's energy system.”
Vattenfall , which has won an AR4 contract for its Boreas wind farm in the “Norfolk Zone” where it has plans for three projects totaling 4.2 gigawatts, also warns that market conditions are “extremely challenging”.
“We still want the Norfolk area to be developed,” says Katherine Young, head of the offshore wind company. “However, government structures, including CFDs, should reflect market realities.”
One scheme that looks especially dangerous is Inch Cape Phase One, a 1.1 gigawatt project off the coast of Scotland. The development is 50:50 owned by the state-owned Chinese energy company Red Rock Power and ESB Group, which is controlled by the Irish government.
In recent months, the project has lost its executive director. The company has previously said it intends to make a final investment decision by the middle of this year.
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Some offshore wind companies are currently pinning hopes on Chancellor Jeremy Hunt's backing, though given that public finances already experiencing difficulties, it looks more and more difficult.
RenewableUK's Musat says there is still time to change the AR5 strike price, which she believes should be twice what it is now for offshore wind.
“Developers need to be sure prices can rise if necessary to reflect economic circumstances,” she adds.
“If the government sends signals that prices can only fall, then I think that in the long run it will undermine confidence.”< /p>
However, for some, these issues raise much bigger questions about subsidies for offshore wind in general.
“It's been 20 years since we started subsidizing offshore wind, but we still have to do it”— says Watt Logic's Porter.
“If you have to support a nascent technology until it matures, then subsidies should drop to zero over time. If that's not your goal, then what's the point of these subsidies now?”
So far, ministers remain optimistic about the industry's outlook, as Shapps dismissed U.S. competition earlier this year.
“The reality is that the US doesn’t have the world’s largest, second-largest, third-largest, or fourth-largest offshore wind farm,” Shapps told MPs in May.
“You know why? They are all being built here in the UK, where we are for decades to come.”
Whether this remains the case, according to experts, should not be taken for granted. Britain may have a head start, but a lot can throw the country off course.
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