Reports related to this article:
Project(s): View 3 related projects in PECWeb
Released September 26, 2023 | GALWAY, IRELAND
en
Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--Europe's leading country for offshore wind development, the U.K., has failed to receive a single bid in its 2023 offshore windfarm auction.
The government-led auction was hoping to award financial support for up to 5 gigawatts (GW) of new windfarm projects through its Contracts for Difference (CfD) scheme. In the end, the auction failed to attract any bids from offshore wind developers, putting in jeopardy the U.K.'s ambitions of deploying 50 GW of offshore wind by 2030 and making it highly unlikely that it will have a net zero power system by 2035. Today, the U.K. has 14 GW of operational capacity--supplying around 15% of its electricity total--with another 7 GW under construction and 6 GW granted subsidies but not necessarily guaranteed to be built.
The same auction in 2022 saw offshore wind projects being the main recipient of funding, with 7 GW awarded support. The government had set a guaranteed maximum price of £44 (US$54) per megawatt hour (MWh)--similar to 2022--which many in the industry had warned was too low considering higher rates of inflation and a general increase in the costs of construction and supply chain difficulties exacerbated by Russia's war in Ukraine.
"This is a multi-billion pound lost opportunity to deliver low-cost energy for consumers and a wake-up call for Government," said Keith Anderson, chief executive officer of ScottishPower. "The CfD process is recognised globally as a lynchpin of the U.K.'s offshore success, but it also needs to flex to keep pace with the world around it. We all want the same thing--to get more secure, low-cost green offshore wind built in our waters. ScottishPower is in the business of building windfarms and our track record is second to none in terms of getting projects over the line when others haven't been able to. But the economics simply did not stand up this time around."
Tom Smout, senior research associate at Aurora Energy Research, wrote: "The [auction] results urgently signaled that we are off course. The government's stated target of achieving 50 GW of capacity by 2030, which was ambitious at its inception, has never looked further out of sight. Thanks in large part to previous CfD auctions, Britain is currently on track to deploy about 26 GW of offshore wind by 2028. To meet government targets and install 50 GW by 2030 we would need to build 12 GW in 2028 and again in 2029. That's not going to happen."
He added: "China was the world leader last year in deploying offshore wind, commissioning 6.8 GW. The U.K. would need to deploy as much capacity in 2028 and 2029 as it did in the preceding 15 years. This would require commissioning three offshore wind turbines each day for two years. To give a sense of the scale of that effort, a modern, 12 MW turbine is almost as tall as the Eiffel Tower. This is just the physical challenge. Financially, the offshore sector is suffering from increasing costs well over inflation, which is already high. Britain's grid operators are struggling to accommodate all of the renewable power plants seeking to come online and grappling with how to manage high levels of renewable penetration. On top of all of this, it seems government support is falling behind what is needed."
Industrial Info is tracking 44 offshore wind projects at various stages of development in the U.K. worth an estimated US$127 billion in investment. Subscribers to Industrial Info's Global Market Intelligence (GMI) Project Database can click here for the reports. Industrial Info has noted that some of the largest U.K. windfarm projects, those awarded CfD funding support in the last government auction, have been shelved over rising costs and support concerns. In July, Sweden's Vattenfall (Stockholm) announced that it was shelving its 1.4-GW Norfolk Boreas offshore wind project, part of its Norfolk Wind Zone series of projects. President and Chief Executive Officer Anna Borg said: "Although demand for fossil-free electricity is greater than ever, the market for offshore wind power is challenging. Higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made offshore wind and its supply chain particularly vulnerable. Overall, we see cost increases up to 40%. This development affects future profitability and means that Vattenfall makes an impairment for wind power in Norfolk, U.K....we have decided to stop the development of Norfolk Boreas in its current form and not take an investment decision now due to mentioned factors, which triggers the impairment. We will examine the best way forward for the entire Norfolk Zone, which in addition to Boreas also includes the Vanguard East and West Projects."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
The government-led auction was hoping to award financial support for up to 5 gigawatts (GW) of new windfarm projects through its Contracts for Difference (CfD) scheme. In the end, the auction failed to attract any bids from offshore wind developers, putting in jeopardy the U.K.'s ambitions of deploying 50 GW of offshore wind by 2030 and making it highly unlikely that it will have a net zero power system by 2035. Today, the U.K. has 14 GW of operational capacity--supplying around 15% of its electricity total--with another 7 GW under construction and 6 GW granted subsidies but not necessarily guaranteed to be built.
The same auction in 2022 saw offshore wind projects being the main recipient of funding, with 7 GW awarded support. The government had set a guaranteed maximum price of £44 (US$54) per megawatt hour (MWh)--similar to 2022--which many in the industry had warned was too low considering higher rates of inflation and a general increase in the costs of construction and supply chain difficulties exacerbated by Russia's war in Ukraine.
"This is a multi-billion pound lost opportunity to deliver low-cost energy for consumers and a wake-up call for Government," said Keith Anderson, chief executive officer of ScottishPower. "The CfD process is recognised globally as a lynchpin of the U.K.'s offshore success, but it also needs to flex to keep pace with the world around it. We all want the same thing--to get more secure, low-cost green offshore wind built in our waters. ScottishPower is in the business of building windfarms and our track record is second to none in terms of getting projects over the line when others haven't been able to. But the economics simply did not stand up this time around."
Tom Smout, senior research associate at Aurora Energy Research, wrote: "The [auction] results urgently signaled that we are off course. The government's stated target of achieving 50 GW of capacity by 2030, which was ambitious at its inception, has never looked further out of sight. Thanks in large part to previous CfD auctions, Britain is currently on track to deploy about 26 GW of offshore wind by 2028. To meet government targets and install 50 GW by 2030 we would need to build 12 GW in 2028 and again in 2029. That's not going to happen."
He added: "China was the world leader last year in deploying offshore wind, commissioning 6.8 GW. The U.K. would need to deploy as much capacity in 2028 and 2029 as it did in the preceding 15 years. This would require commissioning three offshore wind turbines each day for two years. To give a sense of the scale of that effort, a modern, 12 MW turbine is almost as tall as the Eiffel Tower. This is just the physical challenge. Financially, the offshore sector is suffering from increasing costs well over inflation, which is already high. Britain's grid operators are struggling to accommodate all of the renewable power plants seeking to come online and grappling with how to manage high levels of renewable penetration. On top of all of this, it seems government support is falling behind what is needed."
Industrial Info is tracking 44 offshore wind projects at various stages of development in the U.K. worth an estimated US$127 billion in investment. Subscribers to Industrial Info's Global Market Intelligence (GMI) Project Database can click here for the reports. Industrial Info has noted that some of the largest U.K. windfarm projects, those awarded CfD funding support in the last government auction, have been shelved over rising costs and support concerns. In July, Sweden's Vattenfall (Stockholm) announced that it was shelving its 1.4-GW Norfolk Boreas offshore wind project, part of its Norfolk Wind Zone series of projects. President and Chief Executive Officer Anna Borg said: "Although demand for fossil-free electricity is greater than ever, the market for offshore wind power is challenging. Higher inflation and capital costs are affecting the entire energy sector, but the geopolitical situation has made offshore wind and its supply chain particularly vulnerable. Overall, we see cost increases up to 40%. This development affects future profitability and means that Vattenfall makes an impairment for wind power in Norfolk, U.K....we have decided to stop the development of Norfolk Boreas in its current form and not take an investment decision now due to mentioned factors, which triggers the impairment. We will examine the best way forward for the entire Norfolk Zone, which in addition to Boreas also includes the Vanguard East and West Projects."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
