"Budget 2016 announces that the government will auction contracts for difference (CfDs) of up to £730 million (€935 million at time of announcement) this parliament for up to 4GW of offshore wind... Support for offshore wind will be capped initially at £105/MWh (€134/MWh), falling to £85/MWh (€109/MWh) for projects commissioning by 2026."
(The government quotes 2011-12 prices, which will be inflated according to the most up to date consumer price index.)
This means that, by 2026, offshore wind will be cheaper than nuclear in the UK.
The nuclear electricity price for a new 3.2GW twin-reactor power station at Hinkley Point in Somerset has been agreed at £92.5/MWh (€118/MWh) — also in 2012 prices. A final investment decision is awaited, and it is not expected to be commissioned much before 2026.
Assuming the chancellor's price caps for offshore wind are grounded in reality, we can estimate when offshore wind will dip below nuclear. The current parliament runs until 2020, but, taking a cautious view, the initial cap (£105/MWh) may apply to projects commissioned later, by 2021, say.
The cost trajectory for offshore wind, taking into account CfDs already allocated — £120/MWh (€154/MWh) for a project to be commissioned in 2017/8, and £114/MWh (€146/MWh) for one to be commissioned in 2018/9 would then follow the trend shown in the chart, and offshore wind costs may fall below those of nuclear around 2024.
The possibility that the generation cost of offshore wind might fall to around £85/MWh by the mid-2020s was predicted in a report by BVG Associates last July - Offshore Wind: delivering more for less. The fact that the government is quoting similar prices is encouraging; it does not guarantee that they will be achieved, but it can be taken as a vote of confidence in offshore wind.
An alternative to nuclear
The proposed UK nuclear power station for which the electricity price has been agreed continues to be highly contentious, and a final investment decision had not been made at time of writing.
In view of the fact that similar reactor types in Finland, France and China are both late and over budget, there are doubts as to whether the project will proceed.
A cheaper alternative is explored in a report commissioned by Greenpeace Energy in Germany and carried out by Energy Brainpool. Wind power plus "wind gas", it claims, would be cheaper. The study argues that the same amount of electricity as the proposed nuclear power station could be generated by 11.2GW of onshore wind, in conjunction with 3.2GW of combined-cycle gas turbines and 8GW of wind gas.
At times when the power from the wind turbines exceeded the demand on the electricity network, the windgas facility would produce hydrogen by electrolysis. The hydrogen can then be converted into methane, which can either be fed into existing gas distribution networks for use by consumers, or used to power combined-cycle gas turbines (CCGT).
These CCGTs would provide electricity when the output from the wind turbines was less than the demand on the system.
The sizes of the key components were optimised and Brainpool estimates that the proposed scheme would cost 7% less over the 35-year period for which the nuclear plant would receive a premium price. The study used the UK CfD price for onshore wind and the quarterly degression rate that is used in Germany's Renewable Energies Act.
The efficiency of conversion from hydrogen to methane was assumed to be 71% and the efficiency of the CCGT was assumed to be 60%. The advantage of feeding the methane into the gas network is that it provides a ready-made storage facility, avoiding the need for the construction costs of conventional storage facilities.
At a glance — This month's report conclusions
Budget 2016, UK government, March 2016: Announced auctions for contracts for difference of up to £730 million for up to 4GW offshore wind by 2020. Predicted price caps put offshore wind costs below nuclear by 2024 at £85/MWh.
Offshore Wind: delivering more for less, BVG Associates, July 2015 Predicted generation cost of offshore wind might fall to around £85/MWh by the mid-2020s, as later suggested in 2016 budget.
Wind power as an alternative to nuclear power from Hinkley Point C: a cost comparison, Energy Brainpool for Greenpeace Germany, January 2016 Suggests 11.2GW of onshore wind in conjunction with 3.2GW of combined-cycle gas turbines and 8GW of "wind gas" could provide the same amount of electricity at a lower cost as the planned 3.2GW nuclear power station in the UK.