Getting closer to a subsidy free wind farm
The reduction of the cost of offshore wind in the UK has been impressive, but embracing innovation in areas such as Big Data could bring them down further, says Andy Thompson, Atkins' Market Lead for Offshore Engineering.
The long-awaited results of the government’s second Contract for Difference (CfD) allocation round are out, and it’s encouraging to see bigger, game-changing offshore wind projects receiving support to move towards a final investment decision. These huge wind farms are benefitting from major advances in standardisation of components and fabrication, in addition to a well-developed supply chain and skilled workforce.
The CfD auctions are designed to assist in driving down the levelised cost of energy (LCOE) for offshore wind. Essentially making it cheaper to build a wind farm at sea. In 2015, during the first round of the CfD auctions, highly competitive prices were achieved for offshore projects. The strike prices published from the latest round show how far the industry has come in getting costs down in just two years – from a strike price of around £118 per megawatt hour (MWh) in 2015 down to between £57.50 - £74.75 per MWh this time around.
As turbines keep getting bigger, fabrication, transportation and installation become more efficient, wind farms become more reliable, economies of scale kick in, and financing costs reduce as confidence increase, we expect to see costs continue to come down. Research from the Energy Technologies Institute (ETI) suggests this could be as low as £65 ± 15% per MWh by 2025 at which point offshore wind becomes competitive with all forms of electricity generation, and significantly cheaper than some other forms.
Inevitably though, with this announcement we will see and hear comparisons made with the costs given for financing offshore wind farms in our neighbouring European waters: questions about how projects in Germany, the Netherlands and Denmark can be promised at much lower cost per MWh than here in the UK.
There are several reasons for this. Different regulatory regimes mean that considerably more development costs are taken on by the state than is the case in the UK. For example, across much of Europe, development of sites including survey, consent and grid connection are undertaken by the government in question, as well as unique features of the subsidy regime, significantly reduce the risk and cost borne by the site developer.
It’s critical to remember that the reduction in the cost of offshore wind in the UK has been impressive; in the last five years alone costs have fallen by 32% to around £97 per megawatt hour (MWh), sliding under the government and industry target figure of £100 per MWh by 2020. This is largely thanks to developments in the supply chain and the increasing size of the wind turbines themselves. More advances could be made by embracing innovation in areas such as using Big Data to optimise the layout of wind farms, two-bladed turbines, downwind rotors, transmission arrangements, repowering and life extension.
The key is a stable policy environment – these are all technologies where the UK could take the global lead. Atkins’ expertise in creating safer, cleaner and smarter energy both here and around the world has seen our skills and technology in demand here and around the world. We’re seeing a similar desire in other countries to invest in low-carbon technologies; our offshore renewables team has already won design contracts in China for example. But delays and disruption have had an impact on confidence in the UK sector. Investment in renewables has boosted development of low cost energy which in turn has secured jobs, created an export market for technology and expertise, and is helping to lower costs for industry and consumers alike.