By Karl-Erik Stromsta
Thursday, October 17 2013
Updated: Thursday, October 17 2013
The UK has "got its maths wrong" over the support levels on offer claims RWE Innogy chief operating officer Paul Coffey, in another stark example of the gulf between the industry and government's views of offshore wind's viability under the country’s impending contracts-for-difference (CfD) regime.
Many in the offshore industry are counting on Galloper – jointly owned by RWE and SSE, and consented for up to 504MW – to be the next UK offshore wind project to reach a final investment decision (FID), which was expected early next year.
There are other outstanding issues with the CfD scheme that threaten Galloper, including when – or whether – the UK’s Electricity Market Reform package is given State Aid Clearance by the European Union. But the strike price appears the most salient roadblock for the project.
According to Coffey, the draft strike prices – £155 ($247) per MWh in 2014/15, falling to £135 in 2018/19 – are based on outdated assumptions.
At present, offshore developers need support equivalent to that on offer under the existing Renewables
– set to be totally replaced by CfDs in 2017 – but “we and other developers don’t see the £155 as being comparable with the current RO”, Coffey says.
RWE could "in theory" finish Galloper by the RO's cut-off date in spring 2017, but that's "not a financeable proposition" given the very tight timeline, and the sector's reputation for taking "somewhat longer" than expected to build projects.
Coffey declined to provide a CfD figure which would allow for a Galloper green light, saying only that “it’s a higher number” than £155/MWh.
The government’s cost assumptions are largely based on the utilities’ financing requirements during flusher times, and do not take account of the need to bring new kinds of investors into the sector, many which require higher rates of return.
RWE is also concerned about the degression rate built into the CfD scheme, as it decreases steadily whether or not the industry brings its costs down.
Coffey’s comments are the second question mark in a few days against the Round 2 Galloper project, after SSE last week announced a freeze on FIDs until after the next general election in 2015 in response to political uncertainty.
Despite its concerns about the draft strike prices, Germany-based RWE has no such hesitation in terms of the timeline along which it wants to build Galloper, saying that delays could be disastrous for the project.
In the best-case scenario, Galloper could be commissioned by 2017, and delays “are not going to make the economics any better”.
One issue is grid connection. “We’re at the front of the queue right now, but if someone wants to build in front of us because we’re delayed, it calls into question the whole project,” Coffey says.
Delays would also cause problems on the procurement side, as RWE is currently hammering out “capacity slots” for delivery of turbine components and other equipment needed to build the project.
The RWE official also warned that the UK offshore wind sector could reach a “tipping point” in the next six months if the government does not move closer to the industry’s position, with some players leaving the market.
Further discussions with SSE are needed in the near term, with Coffey saying that RWE is considering reducing its stake in Galloper and other offshore wind projects – including talks with a Chinese investor.
The UK government is due to reveal its final plans for CfD later this year.
Note: Update adds further quotes and detail
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