UK 'may fall short' of 10GW offshore

Investment returns for UK offshore wind farms will be “marginally superior” under the incoming support regime, but may not be enough to deliver 10GW of capacity by 2020, according to analyst Bloomberg New Energy Finance.

Earlier this month the Department of Energy and Climate change issued an updated proposal for the subsidy levels under the impending Contracts for Difference (CfD) support scheme.

The most important change was a £5/MWh increase for offshore wind farms in 2018/19, with the difference made up for clawing back support in the nearer term for onshore wind and PV.

Aside from the increase, the CfD scheme has some advantages over the existing Renewables Obligation scheme, which will be phased out in 2017, BNEF says.

Equity returns for projects commissioned between 2014-2018 will come in around 8%-12% under the CfD, which is “marginally superior” to what they would receive under the RO.

But the CfD also poses new risks which may deter investors, BNEF warns.

The biggest concern is that there will be a finite amount of subsidies made available via the Levy Control Framework to all low-carbon forms of energy, including nuclear.

It emerged this week that Westinghouse, the Japanese-owned engineering company, will soon formally announce its intention to buy a 50% in the NuGen consortium, which plans to build a nuclear plant in Cumbria.

In October the UK government confirmed it would offer a CfD worth £92.50/MWh to an EDF-led consortium at the Hinkley Point C nuclear plant in Somerset.

DECC’s latest CfD proposal would see offshore wind farms receiving £140/MWh from 2018/19. That compares to the £90/MWh for onshore wind, £100/MWh for large PV, and £305/MWh for wave and tidal-stream.

In its latest proposal, DECC referred to 10GW by 2020 as an “achievable” aim for the offshore wind sector, although it emphasised that that is not a formal target. The UK has 4.5GW of offshore wind capacity either in the water or under construction at present.

“The government is anxious to convince investors and banks that it has built a cost-effective incentive system to drive the construction of offshore wind projects in the next few years,” says BNEF analyst Sophia von Waldow.

“We are not convinced that it has yet done enough to minimise the complex web of risks that these projects – often in deep water and far from shore – will face.”

“If so,” von Waldow adds, “the UK may fall short of that 10GW figure for offshore wind capacity by 2020.”