Sarah Kuszynski is a research assistant at Bright Blue.
Shallow seas, favourable wind conditions and good port access make the UK a uniquely attractive location for offshore windfarms. And, accordingly, the King in the recent King’s Speech spoke of “working to secure record amounts of investment in renewable energy sources.” But such talk is in danger of being little more than hot air. In the same speech, the Government mandated new oil and gas licences, when it should have committed to boosting the UK’s offshore wind power sector instead.
We should be capitalising on the UK’s comparative advantage, rather than drilling depleted reserves in the North Sea — a move that will undermine the UK’s international reputation for tackling climate change, take us no close to achieving net zero emissions and have minimal impact on improving domestic supply and reducing consumer bills.
Offshore wind power is still one of the cheapest forms of energy in the UK, at £37 per megawatt hour, compared to around £90 per megawatt hour for electricity in the UK in general. Further, offshore windfarms help enhance the UK’s energy security and promote economic growth via the creation of skilled jobs. They are a clean source of affordable energy that should play a central role in meeting the UK’s net zero targets.
However, offshore wind is beset with barriers, including rising costs and lengthy project delays, which are spooking investors, making the future of key windfarm projects uncertain and putting the UK Government’s target of generating 50 gigawatts of offshore wind power by 2030 even further out of reach.
The Prime Minister’s ‘stop-start’ approach to net zero is only making confidence in the renewable energy sector decline. Despite verbal commitments to net zero, the Prime Minister has rolled back on many earlier green promises and left the Government without a comprehensive plan for decarbonising the electricity grid by 2035. This displays a lack of seriousness regarding long-term commitments to clean energy generation. Policy stability is desperately needed to restore confidence, keep costs under control and make offshore wind attractive to investors again.
The offshore wind power sector is being held back by rigid pricing controls. The abject failure of the Government’s latest auction for ‘Contracts for Difference’ (CfDs), termed Allocation Round 5 (AR5) illustrates this. CfDs provide power generation companies with fixed maximum prices — a Maximum Strike Price, or MSP — to sell electricity at for 15 years, thereby ensuring revenue stability. Yet, AR5 did not take into account the rapid increases in the production cost of wind turbines due to recent interest rate increases. Instead, it unreasonably retained the same MSP as the previous allocation round — £44 per megawatt hour — making bidding for any new offshore windfarm contracts less commercially viable.
The low MSP was partly driven by genuine fears of overburdening household energy bills with additional costs — but it was also motivated by the misguided belief that offshore wind technology had reached maturity when, in fact, technologies such as floating wind turbines remain in their infancy and need to overcome major challenges in design and maintenance. Price controls may help consumers’ wallets in the short term, but they come at the expense of developing a workable, innovation-driven offshore wind sector. If the Government does not change the MSP before the next Allocation Round (AR6), to be held in spring 2024, the offshore wind sector is going to suffer.
An overly bureaucratic planning process also blights offshore wind power with project delays. Completion times for offshore windfarms have already doubled over the past two decades. The increased size and number of offshore windfarms has led to project sites overlapping more frequently with Marine Protected Areas. To receive planning consent for these sites, developers must put in place compensatory measures for environmental damage before a project can begin construction. Compensation is currently structured on a project-by-project basis, so agreeing on and reviewing compensatory measures without delaying the construction of windfarms has become more impractical as the number of projects has increased. Such a cumbersome process has meant that no offshore windfarm applications have been approved within the statutory timetable of 18 months since 2019.
Making matters worse, a report by the Independent Offshore Wind Champion highlighted that delays have been exacerbated by the Planning Inspectorate’s limited capacity to process large numbers of Development Consent Orders (DCOs); the planning mechanism used to deliver offshore windfarms.
Evidently, the process for delivering offshore wind projects is in need of reform. A good starting point would be to expand the capacity of the Planning Inspectorate to process applications and standardise the way compensation is provided. This would help to prevent offshore windfarm developments stagnating in much the same way as onshore windfarms, of which no new projects have been built since 2015. A searing indictment of the Conservative Party’s resolve to deliver on its green energy promises.
Unfortunately, the King’s Speech made clear that the political will to decarbonise is lacking. If the Government was truly sincere about boosting investment in renewable energy generation and maintaining the UK’s commitment to net zero, then it would have addressed the setbacks buffeting offshore wind power.