The results of the ‘reverse auction’ to drive down the costs of contracts to generate electricity from offshore wind farms announced last week show a sharp fall in the cost of offshore wind electricity.
This has shaken a lot of well-worn assumptions about the high cost of renewable energy.
Following the UK Government’s auction for ‘contracts for difference’ (CfD), Moray Offshore Windfarm (East) Ltd was awarded a ‘strike price’ of £57.50 MW/hr, based on the first phase being delivered in 2022-23.
The strike price, which is normally higher than the wholesale electricity price, is the tariff that the operator will receive from the Government for the electricity generated.
This represents a huge shift from only three years ago, when the equivalent figure was £140 per MW/hr, and offshore wind is now viewed as a favourable large scale renewable energy source.
But no-one should be under any illusions. The achievement of this outcome is the result of a colossal effort by the sector and developers in particular in research and development, technology development and in engineering design and risk mitigation – and in winning the confidence and support of investors.
This work has brought together industry, Government, and the many agencies and trade bodies that support the sector – and not just in Scotland and the UK, but across Europe and the World. And in many ways, this could just be the beginning.
In Scotland, there are a further two commercial offshore windfarms under construction (Beatrice in the Moray Firth and Hywind Scotland, the world’s first floating array off the east coast) to join the operational site at Robin Rigg in the Solway Firth.
A test and demonstration site is also under construction in Aberdeen Bay. These are in addition to the Outer Forth and Tay sites that are still the subject of legal challenge.
It’s important to look at how this reduction in costs has been achieved. In large part, technological improvements have been a key driver.
We now have bigger, more efficient, higher yield turbines. 3.6 MW turbines are giving way to the 7 MW turbines that will be installed at Beatrice, and turbines over 8 MW are proposed for projects entering construction.
The new generation of purpose built installation vessels along with other technology improvements and methodologies have all helped to drive down costs.
However, we must be careful not to overlook the extraordinary level of collaboration across the industry. I must also pay tribute to the collective efforts of the respective governments, agencies and developers from across the UK with the shared goal of reducing costs. Our development partners involved in the Scottish wind farm projects have played a key role in this.
This kind of co-operation is not always easy in a commercially competitive environment. However, developers have worked hard to share insights and experience. For example, the Offshore Renewable Energy Catapult, The Crown Estate and offshore wind farm owners jointly created SPARTA, a database to share anonymised offshore wind farm performance data. This has helped identify vitally important operational improvements and cost reduction opportunities.
This is not to say that the job is done. Scotland faces challenges with deep water sites and environmental conditions which can impact on the cost of projects.
While there is more to be achieved, offshore wind is working hard to consolidate its position as an affordable source of large scale power – and one which is already benefitting communities across Scotland by creating jobs and supply chain opportunities, reducing climate change emissions and ensuring long term security of supply.
Ronnie Quinn is Chief Executive of the Scottish Crown Estate.
22 Sept 2017