Confidence in the British wind power market has never appeared higher than at the industry's annual get-together in Glasgow last month. Renewable energy might only supply 4.6% of the UK's electricity, about 1.5% of that from wind, but for the first time it looks as if the national target for 10% renewables by 2010 is within reach. A pipeline of large wind projects -- many of them offshore -- look set to come on stream within the next three years.
The confidence was manifest on the conference platform as well as on the bustling exhibition floor of the 29th annual conference of the British Wind Energy Association (BWEA) held October 9-11 in Glasgow. The 2010 target had otherwise long been written off by many commentators. But BWEA chief Maria McCaffery disagrees. "The BWEA absolutely and categorically believe it is eminently deliverable," she said. BWEA chairman Adam Bruce from Airtricity agreed. "We are very close. I am absolutely confident we can and will meet 2010, but it will require some very heavy lifting."
In particular, 1300 MW of onshore capacity needs releasing from the country's infamous planning permission trap over the next few months, where 7800 MW is currently caught. The BWEA's Chris Tomlinson said that wind will be expected to meet the lion's share of the 2010 goal, supplying a total of 6% of UK power: 1.5% from offshore and 4.5%, about 6 GW, from onshore wind. With around 1900 MW operational and over 2800 MW either building or permitted, the industry needs 1300 MW to receive approval before the end of this year to be online by the end of 2010, he said. "Although this has been a record year for consents with 900 MW approved so far, we need more," said Tomlinson.
As energy minister Malcolm Wicks conceded: "Planning delays are a real obstacle." He outlined a raft of reforms proposed by government to speed up the permitting system in England and Wales. These include an infrastructure planning commission (IPC) to take decisions on nationally significant projects, including renewables of at least 50 MW in size. "Smaller scale renewables will benefit from reforms too," such as statements of national policy for planners and requirements on local authorities to consider renewable applications favourably.
But with very few locations left in England and Wales that can accommodate large projects of 50 MW and above, McCaffery doubted the IPC would make "the slightest bit of difference." Keith Anderson from conference sponsor ScottishPower was equally sceptical. "Much of the reform is aimed at speeding up the appeals process," he said. "We really need to concentrate our efforts on helping local authorities process applications more efficiently, objectively and much more consistently." He noted that most investment in the UK is now being made by companies with multi-national investment opportunities. "We need to show that the UK is the best place for that investment," he said. "Today it is faster, easier and cheaper to build a wind farm in America."
Wicks pointed out that the government plans to pass a planning bill in the forthcoming parliamentary program plus two further bills on energy and climate change. "It will be a busy year for legislators and for you who advise us to make sure we get the legislation right," he said.
Despite the barriers, Wicks highlighted wind's increasing momentum. "It took fourteen years for the first gigawatt of wind to come into operation, the second gigawatt only took twenty months," he said. With huge quantities of capacity consented and in the planning process, plus large offshore projects like the 1000 MW London Array due on stream in coming years, the government also expects to hit its 2015 aim of 15% of electricity from renewables, he said.
He also threw down some challenges to the wind community, asking how it could gain greater public acceptance of wind energy and how could it ensure more opportunities for British manufacturing in the renewables revolution, rather than just a few hundred jobs. Other countries reap most of the economic benefits, he pointed out. "It is a real issue that the industry -- including the foreign-owned industry here -- needs to understand; there's a sense of resentment about this."
Henning Von Barsewisch from Repower countered that the industry needed a stable market and that making turbines were not the only jobs going. "Manufacturing can come and go. I would focus on operational jobs: these are there for the lifetime of the turbine and typically in regions where employment isn't high."
Looking ahead to 2020 targets which are currently being thrashed out between the European Commission and national governments, many speakers expected the UK's share of Europe's 20% green power to be challenging. McCaffery predicted that, given the UK's rich natural resources, the country is unlikely to be let off lightly. She said a 20% UK energy target could require some 35% of electricity coming from renewables. Of this, wind could be expected to supply 25% -- 10% from onshore wind and 15% offshore.
Indeed, offshore wind was a dominant presence at the event with no less than seven conference sessions devoted solely to the subject and over 40% of companies exhibiting claiming involvement in the offshore side of the business. The main focus areas were the supply chain, transmission and the future for offshore licenses.
With general agreement that the government's proposed reform of the Renewables Obligation (RO) would deliver enough financial support to offshore wind, financing for the sector was less of an issue at this conference than any before. Airtricity's Chris Veal commented that the government's plan to give offshore wind production 1.5 renewables obligation certificates (ROCs) per megawatt hour was "pitched just about right." Until now all renewables supported under the Renewables Obligation have received just one ROC for each megawatt hour fed into the grid. Veal said that compared with offshore purchase prices proposed by Germany, France and Spain, the income that would result from trading offshore ROCs makes the UK market "quite competitive." He added: "Where we differ -- particularly compared with Germany -- is that our projects have to cover the cost of the offshore grid, which is a significant chunk at around 15% of the total project cost."
The new ROC regime becomes law in 2009. Meantime, Veal said, some power purchasers believe there is too big a risk attached to the income to be had from 1.5 ROCs/MWh. As a result, they will only offer contracts based on floor prices within the current RO structure. Equipment suppliers, on the other hand, are already taking account of the proposed 1.5 ROCs for offshore wind. "Particularly in areas where there is a constraint in the supply chain, suppliers of equipment are pricing their equipment not depending on what it is going to cost, but pricing to what they believe projects can bear," he said. "So until 2009 there is a mismatch between what the suppliers of equipment are asking for in terms of costs and what offtakers are giving in terms of guaranteed floor prices."
From power company Centrica, David Crowther was encouraged by consolidation in turbine supply, which should lead to a greater number of strong players supplying the offshore sector. "This market could really do with some competition and a diverse range of turbines to choose from. Turbines do make up a huge element of the cost of these projects and it is worrying that prices are still rising."
Updating delegates on the timetable for the new offshore transmission regime to connect wind farms into the onshore grid, John Overton from the Department of Business, Enterprise and Regulatory Reform (BERR) reported that the government will be publishing detailed policy proposals early in the new year followed by a consultation. "Go-active" is scheduled for October 2008 when preparations for the new regime begins, including the process for awarding transmission licences. By October 2009, licences will be awarded and the new regime will "go-live."
Overton noted that the £2-3 billion of grid infrastructure needed for the first and second rounds of offshore wind represents huge business opportunities for new offshore transmission owners (OFTOs). He expected to see new players entering the offshore transmission market.
Robert Hull from regulator Ofgem added that compared with the onshore transmission regime, OFTOs will be selected by competitive tender. The tender process, to be run by Ofgem, will be triggered by the transmission requirements expressed by offshore wind generators, he said. The tender is available to all: consortia, banks or investment groups. The licensed OFTOs will receive a regulated revenue for 20 years and income will be based on availability, not utilisation, of the wires. They will also have performance targets with possible penalties from generators for not meeting them.
Meantime, aware that the UK will be required to shoulder stiff 2020 renewables targets, the government is preparing the ground for a future generation of offshore wind developments. Offshore wind will be critical to meeting the targets, said Katherine MacNeill from BERR. A screening exercise is underway to map areas where potential development could take place. BERR is looking at offshore sites in territorial waters around England and Wales up to 50 metres deep. Estimates reveal up to 800 GW of potential capacity. "But this is not unconstrained," she stressed. "We do share the marine environment; there are a huge range of other interests and users." BERR is to publish its findings by the end of this year.
Lessons learned from the first two rounds of offshore wind farm licensing will shape leasing arrangements for future projects, said MacNeill. Experience shows that having secured site development leases some companies have been slow to develop their projects. The competitive process for awarding leases in future will be designed to ensure they go to companies who will actually build projects, she said. "We accept that a lot of the constraints until now have been out of the control of developers, but if we can solve those we want to see building happen more quickly once leases are given out." The government expects the UK seabed landowner, the Crown Estate, to initiate the first of a number of rounds of leasing in 2009. First leases will be awarded in 2010, she said.
"We plan to auction [sites] by blocks," added Ian Pritchard from the Crown Estate. But the initial sequence of blocks will hold out the highest prospects for being developed successfully, he warned. Lease options on sites will initially be for three to four years. If no development takes place in that time, the lease could be terminated and re-offered to the market to ensure that targets continue to be achievable.
As thoughts turn to 2020 targets, a new issue surfaced at this year's conference: the cut-off date for when the Renewables Obligation (RO), which drives the market for wind power, is to end: 2027. If projects are to benefit from RO support for more than a token number of years, they must be online for at least 12 years before then. "This week the whole debate around the RO has really moved on and now we are beginning to start talking about what happens in 2027," said Centrica's David Crowther. "That is going to have an impact round about 2015 on investments that people make. People across the industry are now saying it's time to start thinking about what happens in 2027 to make sure investment doesn't stop.
Although the 2027 deadline will affect all projects, offshore developers in particular are seeing the impact already on power purchase agreements (PPAs). "Currently offtakers are not providing PPAs or floor price of a PPA that extend beyond 2027, so you cannot get debt for projects past that 2027 period," said Airtricity's Veal. Airtricity, unlike most offshore developers, is not a utility but an independent power producer. As such it has no deep pockets of capital to draw on but is reliant on project financing its wind farms. That requires a PPA from one of the major utility offtakers. "What that means in practice is that to finance projects you need to commission by 2014 at the latest; you have only got twelve or fourteen years of debt. If there isn't something to replace or extend the RO by that period, financed projects are going to be difficult to get off the ground."
The 2027 deadline is a potential showstopper for onshore wind too. William Heller from onshore developer Falck Renewables said: "By 2013-2014 the returns don't justify the investment any more. The industry starts to shut down onshore unless something else replaces the ROC or unless the ROC regime is extended."
Grid issues were a prominent feature throughout the conference. "Access arrangements are not meeting the needs of renewable generators," admitted Wicks. A Transmission Access Review to streamline grid connections in the medium and longer term is being carried out by BERR and Ofgem, he pointed out. More than £4 billion of investment in the wires has been sanctioned over the next five years, in addition to more than £500 million to connect renewables, he said. "We are making progress; it will take time and we need to speed up delivery,"
Ofgem's Hull pointed out that this step change in investment is not just for new connections but also to replace old transmission assets. "We have also put in place a mechanism so that if any new additional renewables or other generation comes along, automatically money will be made available for [transmission] companies to invest in that reinforcement," he said. The entire market for transmission provision needs modernising, according to Hull.
Current grid access arrangements have already had to be stress-tested against huge amounts of new generation. Those tests are expected to increase in future -- demand for transmission connections by 2020 totals some 45 GW, said Hull. "But how much of this is genuine?" he asked. Speculative applications with early connection dates are blocking viable projects that are consented or close to being permitted.
He said the access review is looking at ways of making best use of existing capacity on the system. This could involve sharing network access or adopting the BWEA's proposal for "connect and manage," which allows for all projects to be connected, but any mismatch between generation and available transmission capacity is managed by controlling consumer demand or electricity production. There are long lead times in getting planning consents for new transmission and building new infrastructure, Hull added. "Using the existing network better seems to be the sort of thing we can and must be doing," said Hull.
But from Imperial College, London, Goran Strbac questioned whether more material change might be needed to get new transmission built. "We are concerned that the review process is broadly incremental and does not give a long term vision. What are the long term market and access arrangements that will deliver cost effective operation and cost effective development of the UK system? We do not think the transmission access review as it is being scoped today will answer all the questions."
His concerns were echoed by ScottishPower's Anderson. Attempts to change the rules for grid connection are slow and focused on tactical change than on the fundamental strategic shift required, he said. "We don't have time to wait. We need further investment in the grid now and this investment needs to be promoted by our regulator."
Despite the outstanding issues, Anderson said he remains "hugely optimistic" about the future for wind. "The UK has signed up to the European 2020 renewables target. And experience from other parts of the world tells me all the issues in the UK can be resolved. What we need now is concerted action from all parties involved: developers, the Scottish and UK governments, grid companies and the regulator."