United Kingdom

United Kingdom

UK Offshore - Last Word - Time to ask the right questions

The recession has caused particular problems for the UK's offshore wind sector. Historically high material costs combined with a falling exchange rate and the drying up of the credit market have caused the industry to reconsider many of the assumptions used for projects under the government's second round of offshore site concessions. Since the start of 2009, much of BWEA's policy work has focused on measures to revive industry confidence, improve the flow of credit and batten down costs.

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Earlier in the year we submitted our proposals to the Chancellor of the Exchequer, Alistair Darling, and were pleased to see that concrete proposals were made in the UK budget (page 6).


BWEA proposed improved incentives for companies developing Round 2 offshore wind farms, and the government's increase in the ROC multiple had an immediate effect in getting developers such as Dong and E.ON to commit to rolling out projects. We asked for capital assistance and are pleased that it will be coming through the European Investment Bank.

The UK government seems genuinely committed to delivering on the EU 2020 targets, requiring 15% of energy supply to come from renewables by 2020. As we know, there is now a Department of Energy and Climate Change and a host of new legislation has passed through parliament in the last two years, which includes provisions to drive the UK's efforts to decarbonise its electricity supply.

Yet, as the recession took hold and fossil fuel prices tumbled to their pre-2008 levels, it also became obvious that in the short term it could be profitable to continue business as usual, by generating increasing amounts of electricity from coal and gas. Indeed, given that in terms of cost per installed megawatt gas plants are cheaper than offshore wind power, the question is: why not just build more gas-fired plant and burn it while it is cheap?


Fraught with uncertainty

This is a road fraught with uncertainty. Strategically and politically, we can not have any certainty that all the sources of oil and gas available to us today will be at our disposal, even in the medium term, even if exploitation of these resources continues at current levels, which we know it can not.

Hence, the questions we should be asking are: Are we comparing like with like? Is energy from non-sustainable sources really cheaper? Would it not be wiser to insure ourselves against the vagaries of the fossil fuel commodities market by building wind plant which, though perhaps more expensive to construct, has fuel costs we can predict with absolute certainty - zero £ per megawatt hour? On the other hand, as gross domestic product growth starts picking up, so will coal, oil and gas prices, and also prices of fission material, another non-sustainable fuel source.

It is also worth asking to what extent fossil fuel price fluctuations contribute to recessionary cycles and how we can best insure ourselves against another massive hike in our energy prices. As wind industry professionals, we should never be hesitant to champion the fundamentals of our business model. We are harnessing a free source of energy and the future cost certainty of electricity from wind should be a key policy argument in having more of it feeding into the grid.

The wind sector gets challenged on many cost points, but there is no alternative to sustainability, not with the pressures of climate change and increased electricity demand. When it comes to costs, the correct questions we should be asking are: Are we correctly calculating the costs of non-sustainable energy? Are we taking into account all the variables? We need to recognise that moving to a low carbon economy means shifting from an energy fleet which is relatively cheap to construct and expensive to run to one which is more expensive to build but virtually free to run. The sooner we make that shift the better.

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