Info!
UPDATED 1 Sept: The EI library in London is temporarily closed to the public, as a precautionary measure in light of the ongoing COVID-19 situation. The Knowledge Service will still be answering email queries via email , or via live chats during working hours (09:15-17:00 GMT). Our e-library is always open for members here: eLibrary , for full-text access to over 200 e-books and millions of articles. Thank you for your patience.

Offshore wind power prices fall by half as giant farms win generation auction

Decorative image New

Developers of three giant offshore wind farms have been successful in the second government auction under the contracts for difference (CfD) scheme – with dramatically reduced ‘strike price’ bids well below expectations­. Bids of £74.75/MWh and £57.50/MWh succeeded for projects planned to start generating in 2021/23, representing a reduction of nearly half from equivalent bids in the first CfD auction held in 2015.


The CfD scheme is designed to drive investment in new low carbon power generating capacity. Successful projects in this round receive 15-year contracts with a guaranteed price of power generated.


In total, 11 new energy projects were successful in this round – three offshore wind farms totaling 3.2 GW of generating capacity; 86 MW of biomass with CHP; and 65 MW of waste gasification or pyrolysis projects.


But it is the dramatic reduction in the cost of power from planned large offshore wind power that is generating headlines. In 2011, the government challenged the wind industry to reduce its ‘levelised cost of energy’ (LCOE) down from £142/MWh to under £100/MWh by 2020. These new prices, albeit for wind farms yet to be built, demonstrate the very sharp fall in the cost of wind power in recent years to well below £100/MWh. The Offshore Renewable Energy Catapult says that the strike prices of £74.75/MWh and £57.50/MWh equate approximately to LCOEs of £65 and £51.


The bids also undercut the £92.50/MWh price negotiated for nuclear power generated by the proposed Hinkley Point C power station currently expected to generate first power in 2025 or later.


The three winning offshore wind projects are:

·      Innogy and Statkraft’s 860 MW Triton Knoll off the coast of Lincolnshire, due to begin operation 2021/22, at £74.75/MWh;

·      DONG Energy’s 1,386 MW Hornsea Two off the coast of Yorkshire, due to start in 2022/23 at £57.50/MWh; and

·      EDPR’s 950 MW Moray off the northeast coast of Scotland, also due to start in 2022/23 at £57.50/MWh.

 

Announcing the results, the Department for Business, Energy and Industry Strategy (BEIS) stressed that competition in the CfD scheme has driven down the costs for consumers, suggesting that the generating capacity delivered in this auction will cost up to £528mn per year less than it would have in the absence of competition. Minister for Energy and Industry, Richard Harrington, said: ‘The offshore wind sector alone will invest £17.5bn in the UK up to 2021 and thousands of new jobs in British businesses will be created by the projects announced today.’


Trade association RenewableUK was keen to further stress the dramatic fall in the cost of offshore wind, saying that the prices announced are lower than the levelised cost of gas (quoting figures from BEIS) as well as cheaper than the cost of the 35-year contracts for new nuclear power of £92.50/MWh.


Welcoming the results, RenewableUK Chief Executive Hugh McNeal said: ‘We knew today’s results would be impressive, but these are astounding. Record-breaking cost reductions like the ones achieved by offshore wind are unprecedented for large energy infrastructure.’


And he added: ‘Today’s results mean that both onshore and offshore wind are cheaper than gas and nuclear. But this young, ambitious industry can go even further. The government can help us by continuing to hold fiercely competitive auctions for future projects, as it has promised, and by putting offshore wind at the heart of its upcoming Industrial Strategy.’


Meanwhile, Lawrence Slade, Chief Executive of Energy UK which represents the whole energy industry, said: ‘Today’s exceptionally low results are further evidence of how the cost of clean energy is continuing to fall, and the move to a low carbon future is delivered at the lowest cost to consumers. This shows what can be achieved by providing the necessary certainty for investment, which drives down the cost of decarbonisation, benefits customers and the wider economy, and creates highly skilled jobs and stimulates growth in rural economies.’


Slade continued: ‘The industry has shown it can deliver – with over a quarter of electricity generation now [already] provided by renewables. We now need the government to set out an ambitious, long-term plan for further decarbonisation in the Clean Growth Plan, as well as providing certainty around the timing for further [CfD] auctions which allow for all technologies to compete for contracts.’

 

 

Photo: Burbo Bank offshore wind farm
Credit: DONG Energy

Please login to save this item