The Government is being criticised as its latest subsidy auction aimed at supporting new renewable projects awarded no contracts for offshore wind projects. RenewableUK, the trade associaion for the renewable energy industry, is calling for urgent action to restore investor confidence.
The Government’s annual auction invites companies to bid to develop renewable energy projects and contracts to supply the UK grid with electricity. The scheme ensures projects receive a guaranteed price from the Government for the electricity they will generate, which it is hoped will enable companies to have the confidence to invest.
The deal, called a Contract for Difference (CFD), means, if electricity prices in the future rise above that level, the companies pay the excess back to the Treasury. If prices fall below it the Treasury pays the company the difference.
Offshore wind farms
It was hoped offshore wind in the latest round could have helped generate five gigawatts of power, but it was confirmed this morning that no new energy companies submitted bids for offshore wind projects enough to run five million homes, but wind farm builders had warned for months that the Government was not taking into account how much the costs of developing them had soared.
Renewable energy developers were required to submit sealed bids in the auction in the first half of August, before officials ranked the most competitive proposals over the second half of the month. Only the projects offering the lowest cost to energy-bill payers would secure contracts.
But the companies and industry groups had consistently called on the government to take the higher costs into account by adjusting the maximum price they could receive.
Consequently, the three biggest offshore wind developers in the UK – SSE, ScottishPower and the Swedish company Vattenfall, sat out the bidding after ministers refused to increase the maximum price for the auction despite a 40% increase in the cost of manufacturing and installing turbines because of inflation. This followed Vattenfall’s announcement that it would cease working on the multibillion-pound Norfolk Boreas windfarm because rising costs meant it was no longer profitable.
The Department for Energy Security and Net Zero said “significant numbers” of solar power, onshore wind, tidal energy schemes, and for the first time, geothermal projects, which use heat from the ground to generate power, had been awarded funding. But the lack of offshore wind will be a blow to the pledge to deliver 50 gigawatts (GW) of offshore wind by 2030 compared with 14 GW today. Renewable energy groups have said that alternative renewable projects, such as solar, cannot do the heavy lifting in generating the power that offshore wind does.
The technology has been described as a the “jewel in the UK’s renewable energy crown”, but firms have been hit by higher costs for building offshore farms, with materials such as steel and labour being more expensive.
The government’s failure to secure any new offshore windfarms was described by Greenpeace as “the biggest disaster for clean energy policy in the last eight years” because it risked jeopardising the UK’s plan to triple its offshore wind power capacity by 2030, and cast doubt on Britain’s climate targets.
Meanwhite, Keith Anderson, the chief executive of ScottishPower, said “this is a multibillion-pound lost opportunity to deliver low-cost energy for consumers and a wake-up call for Government. We all want the same thing – to get more secure, low-cost green offshore wind built in our waters. ScottishPower is in the business of building windfarms and our track record is second to none in terms of getting projects over the line when others haven’t been able to. But the economics simply did not stand up this time around.”
Ana Musat, RenewableUK’s executive director said that a “perfectly avoidable” financial dilemma facing the British wind industry risked removing the UK’s global lead in offshore wind at a time of increased competition from the US, Europe and parts of Asia.
“We can’t have a ‘boom and bust’ cycle and expect to maintain investor confidence in the UK and grow our supply chains,” Musat said. “It’s such a shame – we’ve been world-leading in this. But we do need to evolve the tools which brought us here. The government said a “global rise” in inflation impacting supply chains had “presented challenges for projects”.
Alistair Phillips-Davies, chief executive of SSE, which is currently building the world’s largest offshore windfarm, said offshore wind power was a much cheaper energy source and about half the price compared with other sources including fossil fuels. However, he stated that “for this particular auction unfortunately the prices were just set too low” for electricity generated to make investment viable.
Ed Miliband, Labour’s shadow energy security and net zero secretary, said the result of the auction was an “absolute disaster for Britain”. He argued the Government had been warned by the industry that “unless they adjusted the auction price this would happen”. They [the government] should be hanging their heads in shame.”
The government’s failure to secure any new offshore windfarms demonstrates a failure to listen to the industry in a time when investing in renewable energy should be the priority.