Regen SW Analyses Offshore Renewables Sector

Following yesterday’s CfD awards, Regen SW, an energy-focused independent not for profit organisation that uses its expertise to work with industry, communities and the public sector, issued an article that analyses offshore renewables sector:

Two offshore wind farms have been awarded contracts in the first allocation round of the new Contracts for Difference (CfD) subsidy mechanism brought in under the Electricity Market Reform process. The successful projects in the Less Established Technologies pot are the 714MW East Anglia 1 and 448MW Neart na Gaoithe projects.

With 4GW of offshore wind capacity currently installed in UK waters and a DECC 2020 ambition of 10 GW (a range of approx. 8-12GW), these projects represent 20% of the remaining 6GW. This is of course good news for these projects, but while DECC have not yet published details of unsuccessful applicants, our analysis suggests that there were a further six projects that were in a position to be competing for an allocation.

The Neart na Gaoithe project has been allocated a strike price of £114.39/MWh (delivery year 2018-19) and East Anglia 1 £119.89/MWh (delivery year 2017-18). With an upper limit strike price of £155/MWh, the strike price allocated to these projects is lower than expected, indicating fierce competition under the CfD ‘pay-as-clear’ auction process. While lower than expected, these competitive prices highlight the hard work being done by the industry to bring down the costs associated with the projects. Under the Levy Control Framework, lower than anticipated strike prices also has the potential to free up budget for other projects and improved capacity projection.

For us in the south west, the loss of the Atlantic Array wind farm back in November 2013 has helped to focus attention on developing and testing innovative new technologies such as floating wind foundations, that have the potential to reduce cost and open up deeper water resource, such as those off our own coast. The Navitus Bay wind farm off the Dorset coastline will be an important wind farm for the region and is currently in the planning system. The result of this examination will be known in Spring 2015.

The big question that still remains is what happens next, and what happens to those projects that didn’t get an allocation. We have seen over 11 GW of offshore wind being pulled by developers in recent months and there is a concern that we may now see this attrition continue. The message is clear, to retain investor confidence, we need clarity beyond 2020 and the budget to deliver these projects needs to be greater. It is likely that some developers will respond to intense price competition by driving down the cost of energy – others may conclude their projects are now uneconomic and will walk away. There is a very fine line between a healthy level of competition and the risk that investment stalls.

The next meeting of the Marine Energy Programme Board meeting takes place in Plymouth next week with Minister Amber Rudd and it will be interesting to hear from DECC on the topic of CfDs for wave and tidal energy – we will report back.

Regen SW

Image: Regen SW (Illustration)

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