Offshore wind on track to deliver reduced energy bills
Updated: Sep 10, 2020
Household energy bills may be reduced in the near future when the most recently approved offshore wind projects begin to feed clean energy into the National Grid. Offshore wind farms, hitherto subsidised by government grants, now use advanced technology so astutely that costs of producing clean energy have fallen dramatically. In time, these companies will be able to operate with “negative subsidies” i.e. refund money to the government.
This is the conclusion of a study conducted by Imperial College London and published in late July. Lead researcher, Dr Malte Jansen from Imperial College, says: “Offshore wind power will soon be so cheap to produce that it will undercut fossil-fuelled power stations and may be the cheapest form of energy for the UK”.
The study focused on government auctions for offshore wind farm contracts in five European countries where companies in pursuit of a licence to build offshore wind farms state the price at which they will sell the energy produced to the government.
Contracts for Difference (CfDs) are the name given to these licences. A generator receives a fixed price (strike price) for every unit of electricity they provide. In return they agree not to receive more than the strike price even if the current market price is higher. If their strike price exceeds market price for electricity supplied, the government pays a subsidy to top up the price and vice versa.
In 2019, the third round of CfD auctions conducted in the UK saw the prices offered by winning companies hover around £40 per megawatt hour of power, a 30% reduction on the previous auction in 2017. The Imperial College study expects the contracted price to undercut the wholesale price for the lifetime of these wind farms when they start to produce power between 2023 and 2025.
When the new Offshore Wind Sector Deal was launched in 2019, one of the headline claims was that offshore wind would provide a third of UK electricity by 2030. The comparable share for 2019 was 10%.
This optimistic projection factors in the advanced technology now available, economies of scale, increased supply chain competition and the progress made in developing floating wind turbines which accords producers the ability to locate their turbines in the location which will enable them to maximise capacity.