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UK subsidy for offshore wind significantly lower than nuclear in latest government auctions

11 September 2017

The UK government has awarded Contracts for Difference (CfD) to three offshore wind farms totalling 3.2GW, with a new record low of £57.50 per megawatt-hour (MWh) set in the country. Dong Energy secured support for the 1.4GW Hornsea 2 off Yorkshire while EDPR and Engie won a CfD for the  950MW Moray 1 off northern Scotland. Both sites will come online by 2023.

Artist's impression of Hornsea 2 windfarm - Image: Dong Energy
Artist's impression of Hornsea 2 windfarm - Image: Dong Energy

The cost of subsidies for new offshore wind farms has halved since the last 2015 auction for clean energy projects. Energy from offshore wind in the UK will be cheaper than electricity from new nuclear power for the first time with the subsidy of £57.50 comparing with a figure of £92.50 per MWh for the new Hinkley Point C nuclear plant being built in Somerset.

Innogy and Statkraft have also secured support with the 860MW Triton Knoll off Lincolnshire, which will come online by 2022 at £74.75/MWh. Biomass CHP and Advanced Conversion Technology projects secured support for 150MW. Five advanced conversion technologies won contracts with strike prices of £74.75/MWh, while a sixth – the Redruth energy from waste project – won with a price of £40/MWh. Two biomass projects secured contracts for £74.75 starting in 2021-22.

Dong Energy UK managing director Matthew Wright said: “This is a breakthrough moment for offshore wind in the UK and a massive step forward for the industry. Not only will Hornsea 2 provide low cost, clean energy to the UK, it will also deliver high quality jobs and another huge boost to the UK supply chain.”

He added that successive UK governments should be given great credit for providing the certainty for continued investment in offshore wind, enabling it to become the thriving renewable industry it is today. He said the company was already building the 1.2GW Hornsea 1 project and has started the consultation process for Hornsea 3.

Energy minister Richard Harrington said offshore wind will invest £17.5bn (€19.2bn) in the UK to 2021 with thousands of jobs created.

Emma Pinchbeck from the wind energy trade body Renewable UK said the latest figures were "truly astonishing". She said nuclear should still be part of the mix but as offshore wind had driven down subsidies, so the nuclear sector should do the same.

However, the nuclear industry said that because wind power is intermittent, nuclear energy would still be needed.

Tom Greatrex, chief executive of the Nuclear Industry Association, said the intermittent nature of wind power would mean it would always need to be backed up by nuclear. "It doesn't matter how low the price of offshore wind is”, he said. “On last year's figures it only produced electricity for 36% of the time."

There are also costs of dealing with excess electricity when there is too much wind or sun, with large scale energy storage the next technological requirement.

Energy analysts said UK government policy helped to lower the costs by nurturing the fledgling industry, then incentivising it to expand - and then demanding firms should bid in auction for their subsidies.

Michael Grubb, professor of energy policy at University College London, was quoted by the BBC as saying that the cost reduction was a “huge step forward in the energy revolution”.

"It shows that Britain's biggest renewable resource - and least politically problematic - is available at reasonable cost. It will be like the North Sea oil and gas industry: it started off expensive, then as the industry expanded, costs fell. We can expect offshore wind costs to fall more, too," he said.

The price of building offshore windfarms has fallen by nearly a third since 2012 as the technology has matured and the supply chain has become more efficient, Developers believe that a new generation of even bigger turbines mean they can achieve further cost reductions in coming years. The newest 8 megawatt offshore turbines stand almost 200 metres high, and could be double this size by the 2020s.

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