Offshore wind prices are plunging fast. A leading wind expert says that the next round of UK contracts awarded (next January) for offshore wind projects will undercut the price given to Hinkley C by around 25 per cent. Not only this but the contract length will be only 15 years for the offshore wind projects compared to the 35 years for Hinkley C. In Germany, meanwhile, the latest round of contracts for onshore wind are being issued at under £40 per MWh, a great deal less than anything a British gas fired power station could set up for. The last Danish offshore wind project at Kriegers Flak was awarded a contract last December for under £44 per MWh (no more than £55 per MWh after taking into account grid connection costs).
Gordon Edge, who served for over a decade as RenewableUK Policy Officer but who now runs an independent consultancy, is predicting that the 'strike price' awarded to offshore wind projects will fall to around £70 per MWh. Not only this, but Edge believes that over 3GW of offshore wind contracts could be issued to fit in with the Government's 'budget' for spending on power from new offshore wind projects. These prices are, however, calculated in 2012 prices as is done with the Hinkley C contract which is worth £92.50 in 2012 prices.
This could mean that in this second round of 'CfD' (contract for differences) allocation (the first was in early 2015) all of the 3GW+ of offshore wind contracts could be in place by 2022/3. This would generate over 4 per cent of UK electricity supply, possibly as much as close to 5 per cent.
Offshore wind contract prices have been plunging at a rapid rate in recent years, as can be seen from the second page graph on the KPMG report at https://home.kpmg.com/content/dam/kpmg/uk/pdf/2016/11/second-cfd-allocation-round.pdf
In general we are seeing a step change in declines in cost of wind power as 'capacity factors' (the average amount of time that a given generation capacity is operating) are rapidly heading upwards. Larger wind turbines with much increased 'swept areas' at greater heights are being deployed which can capture much more energy for a given wind speed per capacity installed. In the case of offshore wind costs are also declining because larger turbines reduce the large costs of installing each turbine, along with other factors such as greater experience in electrical connections and in financing offshore wind which reduces 'risk' and therefore cost.
Bernard Chabot, a wind economist predicts that this process will continue with wind power capacity factors climbing to 60 per cent.
Yet, the UK Government's own method of procuring offshore wind has become the least competitive and most expensive procedure in Europe. Gordon Edge's analysis reveals that in effect there are only three competitors in the race to pick up contracts under the current CfD round.
Competition is limited to a few companies that were granted leases some years ago, with no new leases being issued for several years now. And even in these three cases the companies have been saddled with sorting out planning and site investigation details - details which in other European procurement regimes are dealt with by Government agencies.
This 'laissez faire' process (ironically then micro-managed by Whitehall after contracts are issued) has also led to confrontations with RSPB over some Scottish offshore windfarm projects. On top of this the UK Government is setting onerous rules about how and when the projects that gain contracts should be deployed. All of this is in flagrant contrast to the freedom given to EDF to install Hinkley C. As I commented in my last blog post the Government needs to start the process of identifying new offshore wind sites. I commented in my last blog post that an urgent priority for the Government is that they should:
'Identify new sites for offshore wind deployment as well as quickly bringing forward the issue of power purchase agreements to existing projects with planning consent. The Government should take note of how, in Denmark, the uncertainties and thus the costs of offshore wind have been reduced by the Government taking on the task of researching and consulting on specific sites rather than leaving this to the developers. This only adds to costs which may be part of the reason why UK offshore wind costs are higher than costs in the case of Denmark, The Netherlands and Germany.'
Onshore wind prices, if only the Government awarded any contracts, would be likely even lower than the predicted offshore wind prices. Indeed wind power prices are now challenging prices for contracts for gas fired power plant if only they were awarded on the same basis. But the Government is giving backdoor preference to gas fired power plant over wind through the 'capacity mechanism'.
You can read Gordon Edge's analysis at https://www.linkedin.com/pulse/cfd-ar2-prediction-gordon-edge