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    UK Says Offshore Windpower Costs Halved, Union Disputes Figures


The UK government said the cost to consumers of offshore wind projects has fallen by 50% in the past two years; but a trade union disputes that.

by: Mark Smedley

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UK Says Offshore Windpower Costs Halved, Union Disputes Figures

The UK government said the cost to consumers of offshore wind projects in the North Sea has fallen by 50% in the past two years – to a level significantly below that of new nuclear. But critics say the headline figures conceal hidden iniquities for the UK’s 27mn households.

Eleven new energy projects that will add some 3 gigawatts have been successful in the latest competitive auction for renewable technologies, the government announced September 11. In the latest auctions, the cost to consumers is as low as £57.50/MWh in 2012 sterling.

This contract for difference (CFD) subsidy payment will be paid to the two most competitively-priced windfarm projects accepted in the latest auctions: the 950-MW Moray Offshore Windfarm East (a joint venture of Portugal’s EDP 76.7% and French utility Engie 23.3%) and the 1.386-GW Hornsea Project 2 (being developed by Breesea). Both will start generating 2022-23. Successful projects receive 15 year contracts.

The government said this is 50% lower than its first auction for offshore wind held in 2015, when comparing the lowest clearing price for successful offshore wind projects commissioning in 2018/19 and the lowest clearing price for offshore wind projects commissioning in 2022/23.

EDP Renewables CEO Joao Manso Neto added: “EDPR’s sustained commitment to the UK offshore wind market through Electricity Market Reform and the transition to CfD auctions has enabled dramatic cost reduction from £150/MWh in 2014 to £57.50/MWh today.” Earlier windfarms were awarded following government-company negotiations, rather than auctions.

At £57.5/MWh, the latest windfarm CfD is some 40% lower than the £93.5/MWh CfD to be paid on the first newbuild nuclear Hinkley Point C unit (1.6 GW) – due to start producing 2025 -- and £91.5/MWh CfD to be paid for power from the same-sized second such newbuild HPC unit – both under development by French nuclear giant EDF and its Chinese partner, under a deal signed by the government last September. It is now looking to other operators to build additional nuclear plants, but hoping they will do so at lower CfDs. 

Windpower a 'Bonkers Rip-off Racket', says trade union

However, the GMB trade union, some of whose members work in nuclear construction and operations, points out that government allows windfarms to be paid even when not producing.

“When the energy grid reaches capacity, National Grid stops wind farms from generating, in order to prevent damage to the overhead wires and potential major system disruption. When this happens, the wind farm owners retain their wholesale income – but lose their renewable obligation certificate (ROC) payments subsidy, which are issued only for the electricity that is actually sold to consumers,” said GMB’s statement September 11.

It continued: “The wind farm owners then request government compensation for their lost ROCs revenue through a wonderfully vague "constraint payment" – and many will ask for more compensation than they are losing in income.” It cited one example, the Crystal Rig wind farm, which asked for (and received) £991/MWh in compensation when it was only losing about £50/MWh.

"Electricity is a natural monopoly and in this case the public are being milked by paying twice over – through spiralling consumer energy bills and taxpayer handouts,” the union argued, citing a Times newspaper report that said since 2010, energy bill payers have paid £328mn to wind farm owners for not generating any energy – most of them in Scotland. "The ROC system rewards and punishes the wrong people and appears unfit for purpose,” said GMB national secretary for energy Justin Bowden, calling it a “bonkers windpower rip off racket.”

A report published this February said that gas-fired power plants (CCGTs) will continue to remain the cheapest form of power generation into the 2020s.


Mark Smedley

Since this article was published, the Institute for Energy Economics and Financial Analysis (IEEFA) published a September 14 note on recent auctions for wind-power capacity, showing how the latest UK results confirm a downward cost trend observed in last year’s Danish and Dutch auctions, and an influx of investment capital. It can be accessed at: http://ieefa.org/ieefa-europe-technology-gains-help-drive-rush-capital-markets-offshore-wind