New LSE study shows Scotland-UK offshore renewable energy w-industry needs competition to cut costs and boost innovation

Dr. Tony Hockley
Dr. Tony Hockley

A new study by the London School of Economics finds that UK policy intended to create jobs in offshore wind energy may have the opposite effect.

Government demands that bidders for wind farm development must have approved “supply chain plans”, showing their local jobs and local content, will undermine the sector’s viability once current subsidies come to an end.

The report author Dr Tony Hockley draws on his experience in tackling state aid and state protectionism in the airline industry to highlight the risks for such “techno-nationalism” in industrial policy. He said:

“Offshore wind energy is an attractive option for the UK –  but it must make dramatic cost reductions if it is to play a significant part in the long-term energy mix once the current subsidies are removed.

“Current government policies send mixed messages that discourage the investments required to innovate and reduce costs.”

The paper highlights potential arguments for a Government commitment to offshore wind energy beyond 2020, as a spur to private investment, and a new emphasis on   a competitive supply chain, instead of a local supply chain.

In a foreword to the paper – financed by wind turbine manufacturer MHI Vestas – Frank Vibert warns against policies that may create barriers to entry. He argues that competition needs to be a clear objective, pursued at all stages in the “chain of intermediation”, as it is in the financial services sector.

Dr Hockley added: In the end, subsidised and protected flag-carrier airlines had to shed jobs or close.

“But competition enabled cost reductions that increased the capacity for air travel and employment growth came about because of competition.

“I would expect a similar result from a stable, transparent and open market in offshore wind energy. It is a young industry, with considerable potential for innovation free from well-intentioned but harmful techno-nationalism.

“By standard efficiency measures, most renewable energy technologies require further innovation if they are to prove competitive.

“Incremental change alone will not suffice, and disruptive innovation across the value chain of processes, installation, and turbine technology is essential.

 “Regulatory policies must support these market developments, not hinder them. Cost reduction must be the policy goal.

Offshore wind energy needs more competition to cut costs
Offshore wind energy needs more competition to cut costs

Dr Hockley said that much greater emphasis must be given to the role of competition at all levels, as a means of producing disruptive innovation.

Innovation will be enabled if the sector has the security of a transparent and stable policy environment. Government policy must avoid creating artificial barriers to competition, change, and cost reduction. Where governments tie short-term subsidies to local employment, they endanger the long-term prospects for cost reduction, innovation, and employment.  He added;

“Even China has recently moved away from localisation laws in order to boost competition in its large domestic market for onshore wind energy.

“Despite the range of fiscal incentives to invest in the UK, there can be good reasons why all but the largest players remain unable to do so to a significant extent. The strong emphasis on British jobs for British wind, may put long-term energy policy at risk and lock the UK into the path of incremental innovation.

“It risks pursuing manufacturing jobs at the expense of substantive long-term jobs in R&D and in the operation and maintenance of the UK’s offshore wind farms.

 “Uncertainty over the UK commitment to offshore wind energy, with no target as yet beyond 2020, also acts as a barrier to entry, creating a political risk that hinders both competition and inward investment given the time and financial scale of the investments required.”

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