Offshore wind-ustry anxiously awaits outcome of CfD awards

By MIKE BLANCH

In the UK, the offshore wind industry is on tenterhooks waiting to find out the winners in the latest round of Contract for Difference (CfD) awards. When announced, it will mean that all UK projects to be installed up until the end of 2022 will have price support in place.

We expect the winning prices to evidence major progress in reducing cost of energy from offshore wind, though it will be important not to simply compare headline prices with those from recent continental auctions.

The lower winning bid prices are, the faster the pipeline of more attractive, consented projects will be used up.

So how well suited is the UK project pipeline to enabling further significant reduction in cost to consumers well into the 2020s?

There are 12.2 GW of projects consented and seeking to win a CfD and move to final investment decision. Although, there are currently no projects formally in the consent process (that takes about 20 months), there is an additional 8.7GW of new capacity that has been informally reviewed by the consenting authorities and which could move into formal consenting within 3 years.

So, with nearly 21GW in the pipeline, on one level it looks healthy for at least the next 10 years and industry could be left to work through this.

The challenge is that the most competitive projects generally get built first and the pipeline has some significantly less competitive sites. This means that instead of continued reduction in cost of energy (and hence cost to the consumer) later in the 2020s, the trend could even reverse.

To drive ongoing cost reduction, the industry needs competition from more new sites.

In the seven years since Round 3 site developers were appointed, there have been significant changes to seabed use around the UK. In particular, decommissioning has started on oil and gas fields that could free up new sites with lower cost of energy.

Given the lead time from starting to develop a site to first generation is typically about eight years, there is therefore an urgent need to provide an adequate supply of new sites, with clarity about any changes to the ways that sites get to market.

Only then can the industry fulfill its potential to deliver as much clean, sustainable, low cost electricity to the consumer as is needed.

MIKE BLANCH writes for BVG Associates

1 Sept 2017

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