Delaying offshore wind projects: permanently out of the game – or just postponed?

Richard Cockburn_4 Word
Richard Cockburn, Partner in Bond Dickinson

On Wednesday we had a brief comment from someone who knows what he is talking about. Today, he gives us the longer version of what is going on with the renewables sector.

Richard Cockburn, a partner with Bond Dickinson who specialises in renewables said that a number of factors were currently combining to delay offshore wind projects. He now talks frankly about the industry.

“It is clearly a pity that two of the big six power companies have recently had to abandon plans for offshore windfarms which would have attracted almost £10 billion of investment but I am sure that the industry will get back on track.

“ScottishPower Renewables (SPR) announced in December that work would stop immediately on the Argyll Array Offshore Windfarm because it was not viable and unlikely to be so within the next decade.

“The Arran Array decision came hot on the heels of RWE Innogy pulling the plug on the 240-turbine Atlantic Array project in the Bristol Channel.

“RWE said that because of technological challenges and market conditions it was not the right time to progress with this project.

“One key reason for a number of Scottish offshore wind projects being revisited is the decision by the UK Government not to include the major Scottish projects in the next phase of the Final Investment Decision Enabling for Renewables’ scheme FIDeR which was announced in December.

“The FIDeR has been introduced to bridge the gap ahead of the Contract for Difference (CfD) regime being introduced as part of the impending UK Electricity Market Reform.

“Developers prefer to invest in projects if they have, or are likely to have, a CfD lined up and entry to the next phase of the FIDeR scheme would have been a good indication that projects would get a CfD when the scheme is operational.

“Most of the Scottish projects passed into the first phase of FIDeR.  However in December the Government announced the shortlist of projects which were ‘affordable’ (to the Government) and would proceed to the next stage.  None of the Scottish projects passed through that gateway, but not because they are not bankable.

“The feeling is that the Scottish projects may have been effectively handicapped relative to the English projects because they hadn’t yet received consent from the Scottish Government and that is why consenting is such a big issue the moment.

“These projects – primarily SSE and Repsol’s 1000MW Beatrice, Mainstream’s 450MW Neart na Gaoithe and Repsol and EDP’s 1050MW Inch Cape wind farms – are at a sensitive stage in their development.

“Fergus Ewing has indicated that the Scottish Government hopes to be able to issue consents within the next few weeks, but can be no more specific because of the rigorous process which has to be completed. When that does happen I think it will be a major boost to confidence and a significant step forward.

“Without the consents you cannot secure the funding and it is also difficult to go out to tender to secure people to put the various components together and that can be an extremely time consuming process.

“However there are a number of other factors which are having an impact on offshore wind projects.

“Offshore wind still remains one of the higher cost energies at a current cost per MWh being somewhere north of £150/MWh, dependent on which study you read. The government has put in place an Offshore  Wind Cost Reduction Task Force which has an aim of reducing the cost to £100/MWh by 2020. Costs, have though, gone up in recent years due to a number of factors, not least of which is currency fluctuations, so this has been making offshore developers re-evaluate  the economics of their projects.

“There is also a sense that the UK offshore wind market is maturing – a  number of projects are now in the water with more than 1,000 offshore turbines producing a capacity of over 3.6GW and more are on the way. But with that comes perhaps a tempering of the full-on enthusiasm with which the first offshore wind projects were launched. Businesses are looking afresh at the figures underpinning their projects and making hard-nosed decisions about the future of those projects.

“Also having an effect is the fact that the supply chain is increasingly a global supply chain so companies  are looking to other countries offering a bit more certainty than the UK at the moment – northern European countries such as German, Belgium and Holland.  They have lots of projects going on in their waters and more stable regimes at the moment so companies are deciding to look there for business.

“Quite a number of the supply chain businesses also service the oil and gas sector which is extremely buoyant and with limited resources they are focussing on the areas most likely to provide the greatest revenue and are therefore focusing on oil and gas.

“I think it is a difficult phase but the political and environmental imperatives are so strong that offshore wind will happen – it is just a question of when.”

 

 

 

 

 

 

 

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