Policy clarity can keep UK offshore wind on the growth track

OPINION | Falling costs and the need to decarbonise mean the UK is likely to want even more offshore wind into the 2020s, so it needs to get the right policies in place now, says Mike Blanch

In a world where political instability and unpredictability has become the 'new normal', it's good to see that offshore wind capacity is continuing to grow. The global offshore wind club is becoming less exclusive all the time, with more countries developing offshore wind as a key part of their energy mix.

The tumbling of costs has increased the attractiveness, and therefore likely deployment, of offshore wind, encouraging early movers to deploy even more, hesitators to start deploying and many more to revisit the feasibility of developing offshore wind.

In the UK, the industry is on tenterhooks waiting for the Contracts for Difference (CfD) announcement in September. It will mean that all UK projects up to end 2022 will have price support in place. The industry would welcome some clarity on the likely shape and scale of energy support after that date. Hopefully the announced far-reaching reviews in both storage and energy cost-effectiveness will provide that clarity.

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At BVGA, we expect the UK to reach 10.9GW installed capacity by the end of 2020, within Government’s anticipated range stated in 2013 of 8GW to 15GW. After the current round of CfDs, two or three more CfD funding rounds are expected before 2020.

After that date, political uncertainty – in Europe and globally – increases the level of speculation in any forecast, but we anticipate around 1GW of installed capacity per year can be supported under the CfD regime in our central scenario.

The lower winning bid prices are, the faster the lower-priced consented projects will be used up. So how is the project pipeline?

Now that East Anglia Three has been given planning consent, all UK projects expected to be built up to the end of 2025 have consent.

There are now no UK projects formally in the consent process, which takes about 20 month under either the Planning Inspectorate (PINS) (in England and Wales) or Marine Scotland (Scotland). This emphatically does not mean the UK pipeline is fast disappearing.

The table here shows the projects that are at the pre-application stage and are expected to apply for consent by Planning Inspectorate (PINS) or Marine Scotland – a total potential of 8.7GW of new projects.

Including sites that have agreements to lease, we estimate the total potential capacity of UK sites in development is 25.5GW. Not all of that will be developed and be able to deliver low enough prices.

This might suggest there is time for site development to continue with business as usual, where [UK seabed landlord] The Crown Estate merely responds to requests for mainly project extensions, and for the UK government to have time to reflect, and even entertain changing policy as radically as moving to developing sites along the Dutch/Danish model.

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The likely low CfD bids and the continued rapid decline in costs, are likely to make this policy stance difficult to maintain.

It is quite clear that decarbonising transport and heating in the UK is going to increase demand for energy in the form of electricity, and so increase the demand for more offshore wind. Growing storage capacity at a grid scale and in individual homes is also enabling more generation from intermittent renewables. Also, if CfD prices are comfortably below those of Hinkley C, it logically suggests a policy to accelerate the growth rate of offshore wind capacity.

In the seven years since Round 3 site developers were appointed there have been changes to the seabed use around the UK, particularly decommissioning oil and gas fields in sites that could potentially expand the locations that can give lowest price offshore wind.

Given that the lead time from starting to develop a site to first generation is about eight years, this suggests there is a much greater urgency to settle on site development policy in the next years to ensure an adequate supply of low price offshore wind capacity.

As the industry has shown time and time again, offshore wind only needs clarity, not favours, for it to play a key role in delivering a more environmentally and economically sustainable energy mix.

Mike Blanch is associate director at BVG Associates