Installing an additional 30GW within ten years will require significant changes to a range of policy frameworks, and co-operation between government and industry, writes Christopher Hopson
By Christopher Hopson
Achieving UK prime minister Boris Johnson’s election promise of a fourfold expansion in offshore wind — from about 10GW today to 40GW by 2030 — will be far from easy, requiring significant changes to a range of policy frameworks, including seabed leasing, Contracts for Difference (CfD) and offshore transmission, leading industry figures tell Recharge.
Adding 30GW of wind power at sea within a decade will be a mammoth undertaking, necessitating the installation of one 10-12MW turbine every weekday throughout the 2020s, about £48bn ($62.3bn) of investment and a further 20GW of tenders within the next few years, according to analyst Aurora Energy Research.
Jim Smith, managing director of developer SSE Renewables, says that delivering such a significant increase in capacity will “not be a walk in the park” and will require “a lot of collaboration between the government, industry and stakeholders… to unlock this pipeline of projects”.
His boss, SSE chief executive Alistair Phillips-Davies, points out that meeting the target would require more regular CfD auctions and policy changes to address existing bottlenecks in planning permission and grid connections, as well as easing siting restrictions relating to military aviation.
And as Mike Blanch, associate director at renewables consultancy BVG Associates, tells Recharge: “I think the UK is moving from a point where offshore wind is a ‘nice addition’ that helps reduce the carbon footprint of electricity, to the position where it’s now a mainstay form of power generation where we need to build the structures around it to make sure we get what we want.”
Pressure is building on the Crown Estate, the UK’s seabed landlord, to push ahead with its 7GW Round 4 leasing process — its first in ten years — and move quickly to introduce a larger fifth round. However, the coronavirus pandemic has forced the Crown Estate to rejig its timetable for Round 4, which will now commence its final bidding cycles in October.
“My key concern was that there was such a big gap between the UK’s Round 3 leasing in January 2010 [covering 32GW in nine zones] and Round 4,” says Blanch. “You need to get a supply of new seabed leases coming through at the right rate, and at a quicker rate than they have done in the past.
“Round 5 should be held sooner rather than later so companies know what is coming and can start to plan.”
Jonathan Cole, Iberdrola’s global managing director for offshore wind, tells Recharge: “You can have a discussion about whether you should have a CfD round every year, 18 months, or two years. But what matters more is that industry can see up front what the frequency of auctions is going to be and then stick to it.
“What’s happened in the past is that the period between CfD auctions has been irregular, and it hasn’t been communicated well enough in advance. What I think is important is to map out the years when we are going to have auctions, the parameters of the auction, and maybe even say something about the expectations of what you are hoping to get out of each round.”
Keith Anderson, chief executive of Iberdrola-owned utility ScottishPower, adds: “What we really need to do is to agree with government on a roadmap clearly showing milestones and targets for the installation of renewables projects, year-by-year for the next ten years.”
According to Cole, the CfD scheme works very well, but needs two important changes to allow an additional 30GW of offshore to be built by the end of the decade.
“One thing I would certainly change right now is that it requires developers to take a final investment decision [FID] within 12 months of getting an award. For an offshore project where you are trying to grow the UK supply chain, I think it would be much more sensible to allow two years to take the decision, which gives you more time to develop UK suppliers in advance of a FID.”
Significantly, Cole is also strongly against the overall capacity caps set on deployment within the CfD scheme. Last year’s third CfD auction — which achieved a record low strike of £39.65/MWh ($48.8/MWh) — set a total capacity cap of 6GW, with 5.47GW of offshore wind securing awards.
“As we are in a race towards net-zero greenhouse gas emissions [by 2050, as set out in UK law] and are fighting against climate change, why on earth would you want to impose something, which, by its very nature, is there to stop you building clean, green energy infrastructure,” says Cole.
“There is no reason to do it, especially when offshore wind is now coming in at below the wholesale market price and is actually returning money back to the consumer.”
In the CfD scheme, the government sets a “strike price” for the energy output of winning projects. When the wholesale market price is lower than the strike price, the government pays a top-up, so that the project owner always pockets the strike price. And when the market price is higher than the strike price, the project owner pays the difference to the government.
A detailed strategy for procuring and delivering the 40GW commitment has yet to emerge from the UK’s Department for Business, Energy & Industrial Strategy (BEIS), although in early March it embarked on an industry consultation on proposed changes to the CfD scheme, which may prove to be a highly significant development.
Blanch says introducing annual auction rounds, setting bolder long-term targets, and scrapping deployment caps “are all quite possible” but that it’s not necessarily the CfD system which is the bottleneck to getting projects built. “The CfD may be one factor, but its more the whole process from sites being identified, coming through, and gaining consent,” he explains.
The consultation also asks for views on maintaining the cap on individual offshore wind projects (or phases of larger projects) at 1.5GW which BEIS believes strikes a balance between economies of scale and facilitating new entrants to the market, increasing the likelihood of a greater number of applicants being successful in future rounds.
The CfD system was originally set up with two “pots” of technologies, which each had their own funding allocations. Pot 1 featured “established technologies” such as onshore wind, solar, hydropower, landfill gas, sewage gas, and energy-from-waste with combined heat and power, while Pot 2 contained the “less established” technologies and included offshore wind, geothermal, remote island wind, and wave/tidal. CfD auctions have not included Pot 1 sources since the first auction awards were made in February 2015, due to government opposition to onshore wind and solar. Offshore wind prices have dropped dramatically during that period from £114.39/MWh for Neart na Gaoithe in Round 1 in 2015 to as low as £39.65/MWh for Dogger Bank Creyke Beck A and Sofia in Round 3 last year.
The CfD consultation document aims to bring Pot 1 activities back into the fold after a recent government U-turn, and it suggests two options for offshore wind. Should it stay in Pot 2, or be carved into a new Pot 3 — to allow newer and more expensive technologies such as floating wind, tidal and wave power to realistically compete in the tenders?
The document points out that a number of onshore wind and PV projects have been deployed in recent years on a merchant (ie, subsidy-free] basis since 2015. “However, there is a risk that if we were to rely on merchant deployment of these technologies alone at this point in time, we may not see the rate and scale of new projects needed in the near term to support decarbonisation of the power sector and meet the net-zero commitment at low cost,” it says.
“We expect that some of these technologies have the lowest costs and would be able to secure CfDs at strike prices below the average expected wholesale price for electricity, and so over the course of a contract may pay back as much, or more, than they receive in CfD top-up payments (based on current market forecasts). Therefore running an allocation round in 2021 which includes established technologies will help deliver a diverse generation mix at low cost, as well as give a clearer signal of the costs of these technologies, several years on from the previous auction.”
There is a risk that the UK government — which will be tight for cash after paying out billions of pounds in grants and loans to help businesses overcome the coronavirus pandemic — may wish to save money by relying heavily on onshore wind and solar, rather than offshore.
However, the ruling Conservative Party has traditionally preferred offshore over onshore build-outs to avoid not-in-my-backyard (Nimby) protests among its traditional voter base.
Blanch points out that “the inclusion of onshore wind and solar in the next allocation round, slated for 2021, is low risk for the government. Never has the level of price support needed been so low.”
In other words, if Pot 1 CfDs are effectively cost-neutral, it should have little or no bearing on future offshore wind tenders in Pots 2 or 3.
BEIS also seems interested in accelerating the deployment of floating wind — which could in future years be cheaper and easier to deploy than bottom-fixed offshore wind farms.
“We are proposing that floating offshore wind is classified as a separate technology with a distinct administrative strike price, so that projects may compete in future auctions for Pot 2 (less established technologies),” says BEIS.
Blanch backs such an approach. “I think floating will need the kind of early support in just the same way as we have supported fixed-bottom offshore wind to become so successful. This is to make sure that innovation happens in floating wind fairly quickly.
“There was a time when we said we don’t need floating wind off the UK because we’ve got lots of shallow sea areas suitable for fixed-bottom projects. But the thing which changes that is the [unofficial] 75GW by 2050 target [to reach net-zero emissions], so rather than being nice to have floating becomes something we need — so the mindset changes.”
There is a chance that a focus on floating technology might reduce the amount of cash available for conventional offshore wind.
All this highlights the importance of the CfD consultation process, which is scheduled to close for submissions on 22 May.
Whatever is decided will have a huge impact on the future renewables build-out in the UK.
But it is not just BEIS that should have a say in how the country meets its net-zero obligation by 2050, says Benj Sykes, vice-president of UK offshore at Orsted and co-chair of government/industry working group Offshore Wind Industry Council (OWIC).
“I think one of the most critical things from the government’s side is that we need to see a really well joined up approach to offshore wind, and more generally to the whole net-zero carbon question,” he tells Recharge.
“We need to see an alignment of objectives across government departments in order to unlock the 40GW [of offshore wind] by 2030, and crucially achieving the net zero emissions that we will need to unlock by 2050. We have at least six government departments all with a shared imperative to get to net-zero, so we can’t, as an industry, do it department by department.
“I don’t underestimate the challenge, but if we can get a strong cross-government alliance going, working closely with OWIC and other industry bodies, then we do stand a good chance of meeting the manifesto promise.”
Cole adds: “ The UK’s net-zero ambition requires 75GW of offshore wind capacity by 2050, and the sooner the industry can deliver on that, the better to help with the electrification of the UK economy. Absolutely anything which can be done to accelerate the building of these wind projects, especially at such affordable prices, then you should be doing that.
“If you are really serious about achieving net-zero then you shouldn’t put up any barriers to deployment, including capacity caps, which are the biggest barrier of all.”
Developers have faced discontent in some coastal communities in eastern England over the onshore infrastructure required by offshore wind farms to link to the national grid, with local politicians calling for a freeze on planning consent until projects are able to share such connections.
Cole says one of the big questions is how to improve offshore grid infrastructure. “Do you continue with this project-by-project grid connection to shore, or do you move to something more strategically planned with better interconnection, more resilient, and maybe with less impact on onshore infrastructure.
“In the longer-term this is something which really ought to be looked at quite seriously.”
However, he emphasised that “as we plan for the future of the offshore transmission network we must ensure we don’t slow down what has to be done over the next ten years to help achieve net-zero and deliver the 40GW”.
UK energy regulator Ofgem has signalled it intends a major shake-up of the UK’s offshore wind transmission system, focusing on potential shared and meshed connections, while declaring that the current arrangements for transporting power to shore are unfit to support the government’s 40GW ambitions.
The regulator is now working with UK system operator National Grid to explore whether a more coordinated offshore transmission system could reduce both financial and environmental costs. It is also discussing the potential for UK offshore wind projects that integrate international interconnectors.
“We now need to be doing solid work on looking at the future grid to see how we can accommodate these higher capacity volumes,” says Blanch. “If we are going to do 75GW by 2050 we might conclude we are going to have to do it in a different way.”
A multi-user, 'planned' transmission system for offshore wind off the New England coast of the US could generate grid savings of up to $1bn, according to a new report by consultancy The Brattle Group. The Report from The Brattle Group says a planned approach could reduce marine cabling needs by 50%