Published on September 23rd, 2019 | by Joshua S Hill0
UK Offshore Wind Prices Reach New Record Low In Latest CfD Auction
September 23rd, 2019 by Joshua S Hill
The latest UK renewable energy auction has awarded 12 projects, including 5.5 gigawatts (GW) of offshore wind projects, at record low prices as low as £39.65 ($50.05).
The United Kingdom’s Department of Business, Energy & Industrial Strategy (BEIS) announced twelve new renewable energy projects as recipients of the latest Contracts for Difference auction scheme last week, which will provide around 6 GW of capacity, generate enough power for the equivalent of over 7 million homes, and result in the creation of up to 8,000 jobs across the country. Included in the winning bids of this the third Contracts for Difference (CfD) round were Advanced Conversion Technologies projects — projects which convert waste into energy — and Remote Island Wind project which will see the development of four remote wind projects on islands off the coast of Scotland.
But the big capacity was awarded to six offshore wind projects with a cumulative awarded capacity of 5.5 GW, including 3.6 GW awarded for wind farms at Dogger Bank to be developed by Equinor and SSE and another 1.4 GW for Innogy’s Sofia wind farm, which will also be constructed at England’s Dogger Bank.
Of most interest, however, was the plummeting prices for UK offshore wind. According to the BEIS, prices for the third round fell by around 30% as compared to the second CfD round held in 2017, and have fallen as much as 66% as compared to the first round held in 2015. The lowest price awarded was £39.65 ($50.05) per megawatt-hour (MWh) — which was awarded for three of the four Remote Island Wind projects as well as three of the offshore wind projects — the 1.2 GW Doggerbank Creyke Beck A, the 1.4 GW Sofia Offshore Wind Farm, and the 12 megawatt (MW) Forthwind offshore wind farm off the coast of Scotland.
Conversely, the highest prices were not much off the lowest prices, measuring in at £41.611 ($51.72) per MWh for all projects which were not awarded at the £39.65 mark.
“The record low strike prices of between £39.65 – £41.611 MWh (in 2012 prices) is equivalent to a delta of £44.95 – £47.18 /MWh if indexed to 2019 prices,” explained Shimeng Yang, Wood Mackenzie Senior Research Analyst. “This is comparable with expected annual average wholesale prices of approximately £45/MWh in 2019 in the UK.
“The UK government expects a negative notional budget impact of deploying offshore wind based on their reference price. The actual CfD top-up payment will be determined by the wholesale power price over the next 15 years. However, we expect this would lead to a positive gain for the UK government.”
Unsurprisingly, the record-low prices have been warmly welcomed by the country’s offshore wind and renewable energy sectors.
“Securing this record amount of new renewable energy capacity in this auction is the biggest single step that the UK has taken towards meeting our net-zero emissions target,” said Hugh McNeal, Chief Executive of the country’s wind energy trade body, RenewableUK. “As these results show, offshore wind is the key technology for this country in tackling the climate emergency. Offshore wind will be the backbone of the UK’s clean, modern energy system and will supply at least a third of our power by 2030.
“These new offshore wind projects will support thousands of new jobs and bring billions of pounds of new investment across the UK, particularly benefitting the coastal communities which are industrial hubs for the offshore wind sector in places like Grimsby, Hull, Teesside, Lowestoft, Great Yarmouth, the Isle of Wight and Aberdeen.”
“The cost of offshore wind continues to fall – now to below €50/MWh including grid connection,” said Giles Dickson, CEO of the European wind energy trade body, WindEurope.
“Offshore wind is now the second cheapest form of new power generation in NW Europe – behind onshore wind. The technology continues to develop. The supply chain continues to evolve. And it’s delivering huge volumes – this UK auction at 6GW is the world’s largest-ever wind energy auction.
“This auction also confirms the UK’s position as the leader in offshore wind in Europe. They have the largest auction plans: 2GW a year to 2030. They’ve the best auction model, the 2-sided Contract for Difference: requiring wind farms to pay back the difference when the market electricity power exceeds the guaranteed price delivers the lowest overall societal costs. And they’ve the best model for government-industry collaboration with the wind industry committing to 27,000 jobs on the back of the Government’s commitments on future auctions. Other European countries should take careful note as they finalise their offshore wind plans as part of their 2030 National Energy & Climate Plans.” – Dickson
So low were the third round prices that there is speculation that offshore wind developers may simply choose to go the merchant route and avoid the Government’s allocation process altogether.
“The upcoming UK CfD round 4 discussions will now go beyond the budget allocation,” Wood Mackenzie’s Yang added. “They will focus on capacity caps to ensure competitiveness, as well as volumes needed to reach the 30 GW offshore wind target by 2030. Furthermore, the declining UK offshore wind strike prices will force developers to prepare for bids below current power prices or to follow a pure merchant route to market.”
The CfD round 4 was announced only a day before the round 3 projects were awarded and announced, and this time the UK’s Crown Estate — which leases the seabed to offshore wind developers — is opening up at least 7 GW of new seabed rights for offshore wind development in the waters around England and Wales. At least 7 GW will be awarded and is expected to be developed for generation beginning in the 2030s.
“The UK is home to the world’s largest offshore wind market, attracting global investment, meeting UK electricity needs, and playing a crucial role in the transition to a net-zero economy,” said Huub den Rooijen, Director of Energy, Minerals and Infrastructure at the Crown Estate.
“Leasing Round 4 is the next chapter in this remarkable transition, developed and refined through extensive engagement with the market and stakeholders, to deliver an attractive, fair, objective process, which helps to balance a range of interests in the marine environment.
“Round 4 projects will take the UK sector from strength to strength, delivering clean, affordable, home-grown electricity and joining a robust pipeline of projects in UK waters, which together will deliver a fourfold increase in operational offshore wind capacity by 2030.” – den Rooijen
The fourth round has similarly received praise from the UK’s offshore wind and renewable energy sectors.
“This announcement, fulfilling a commitment in the Sector Deal agreed with government earlier this year, is a key step in our journey to making offshore wind the backbone of Britain’s electricity system, as we target net zero carbon emissions,” said Benj Sykes, Industry Chair of the Offshore Wind Industry Council. “By 2030, at least a third of the UK’s electricity will come from offshore wind, which will play a significant role in decarbonising our electricity system.”
“It’s great to see the UK stepping up its ambition with a new round of offshore wind development now underway,” said RenewableUK’s Chief Executive Hugh McNeal. “This will engender further momentum in our world-leading offshore wind sector, securing billions of pounds in investment in new infrastructure.
“These powerhouses of the future will create thousands of highly-skilled jobs, continuing the rapid regeneration of our coastal communities, as well as benefitting our UK-wide supply chain. The healthy pipeline of projects to come will also make a significant contribution to the UK reaching net zero emissions as fast and as cheaply as possible”.