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Image: One of the UK's existing floating offshore wind projects
Credit: Principle Power
After a disappointing clean power auction announcement last Friday, concerns are mounting regarding the potential delays facing a prominent Welsh floating wind project. Reports emerging over the weekend confirmed that one of the United Kingdom's flagship offshore wind endeavours, the 100MW Erebus floating wind farm located off the coast of Pembrokeshire, Wales, is now anticipating a setback of at least a year in its development timeline.
Originally scheduled to commence operations in 2026, this project carried substantial significance, aiming to significantly contribute to both Welsh renewable energy targets and the UK government's ambitious goal of achieving 5GW of floating offshore wind capacity by 2030.
However, the project, backed by TotalEnergies and Simply Blue Group under the banner of Blue Gem Wind, opted out of participating in the latest Contract for Difference (CfD) auction and several other new initiatives. Their decision stemmed from escalating costs and a lack of confidence in achieving a satisfactory return, mainly due to the government's failure to adjust the reserve price established for the auction.
Throughout the past year, the industry had repeatedly conveyed to government officials that the maximum price of £44/MWh for new offshore wind farms and £114/MWh for new floating offshore wind farms would be grossly inadequate to secure any bids. Industry experts warned that the sector had experienced significant capital, labour, and material expenses hikes.
Consequently, the auction round fell significantly short of last year's achievements, only awarding contracts to 3.7 GW of new projects, primarily those in the onshore solar and wind farm sectors. The auction's failure to attract offshore wind developers has triggered alarm bells in the industry, raising concerns that the UK might fall behind on its target to deliver 50GW of offshore wind capacity by 2030. This setback could also jeopardize its leadership role in the emerging floating wind industry and its aspiration to establish a net-zero emission power system by 2035.
Jess Hooper, director at the trade body RenewableUK Cymru, emphasized that the challenges faced by the Erebus project serve as a poignant example of the broader consequences stemming from the auction's shortcomings on the industry as a whole."
"As Wales' first floating offshore wind project, Erebus is entirely dependent on this form of revenue support to succeed, and the success of Erebus is critically important not only to Wales and the wider South West region but also for the UK government's own floating offshore wind targets," she said. "This result will now delay investment decisions for developers, supply chain companies, ports and infrastructure, all with knock-on effects.
"Despite the industry's clear warnings, the UK government has not taken inflationary costs and supply chain squeeze into account in this latest auction, focusing solely on competition through cost reduction. This is a huge wake-up call that if we want to deliver on our targets in this decade of delivery, we need to see considerable reforms to the CfD auction design and industrial strategy to support its development and deployment."
A spokesperson for Blue Gem Wind told the BBC they were optimistic the project could proceed, confirming that "a potential delivery strategy for Erebus is currently being developed, which will have to fully consider future plans". But they acknowledged the project was now facing a "challenging environment".
"Well-known global factors that have significantly increased supply chain costs in the last 18 months, combined with deploying floating technology in a region that has not previously supported offshore wind, have created a challenging environment," they said.
Blue Gem Wind's experience is now mirrored by offshore wind and floating offshore wind developers across the UK, all grappling with the need to recalibrate their project timelines due to escalating costs and the auction's lacklustre performance.
One striking example is Vattenfall, which earlier this summer decided to halt its flagship Norfolk Boreas project despite previously securing a CfD. The company cited a staggering 40 per cent surge in project costs since the contract was initially awarded. This move has ignited speculations that other developers may follow suit and suspend their projects in the upcoming months.
Consequently, a growing chorus of voices is advocating for swift government action to establish a higher reserve price and expand the budget for the forthcoming CfD auction. Additionally, there's a call for negotiations with developers who already hold CfDs to guarantee the timely execution of projects in the pipeline.
Supporters of the industry argue that offering contracts at a higher price point that accurately reflects the heightened costs developers are grappling with could still undercut current and projected prices for gas and nuclear power, ultimately resulting in cost savings for consumers.
Meanwhile, the government remains resolute in defending its management of the auction round, asserting that the CfD regime has thus far delivered record-breaking advancements in power sector decarbonization and substantial cost reductions for consumers.
"Offshore wind is central to our ambitions to decarbonize our electricity supply, and our ambition to build 50GW of offshore wind capacity by 2030, including up to 5GW of floating wind, remains firm," said Energy Security and Net Zero Minister Graham Stuart. "The UK installed 300 new turbines last year, and we will work with industry to make sure we retain our global leadership in this vital technology."
The government also insisted that it reviews its approach ahead of each Contract for Difference round and, with the introduction of annual auctions, project developers, including from the offshore wind industry, will now have more frequent opportunities to participate".
"The government is already gearing up for the sixth round of auctions in 2024 - which will be the second annual auction - and looks forward to future participation of offshore and floating offshore wind," it added.