The government has given the go-ahead to the world’s largest offshore wind farm, to be built off the Yorkshire coast by Denmark’s Dong Energy. The project, known as Hornsea 2, will have a capacity of 1.8GW and will be comprised of 300 wind turbines which are expected to provide enough power for approximately 1.8 million homes in the UK.
Consent for the project gives confidence to the offshore wind industry which is reacting positively to the government’s emphasis on the development of UK industry, with the recent creation of the Department for Business, Energy and Industrial Strategy. The project is expected to lead to the creation of jobs in construction, operations, and maintenance. Business and Energy Secretary Greg Clarke said, “Britain is a global leader in offshore wind, and we’re determined to be one of the leading destinations for investment in renewable energy, which means jobs and economic growth right across the country.”
The next stage for the Hornsea 2 project will be to obtain funding from the government through the Contract for Difference (CfD) scheme. A CfD is a 15-year contract which guarantees the generator the difference between an estimate of the market price for electricity and a strike price that is required by the renewable generator to make it viable. Historically, offshore wind farms were subsidised via the Renewables Obligation, the support scheme for medium and large scale renewable projects in the UK. This scheme closes for new entrants in March 2017 and continues for generators with existing accrediatation for 20 years. The transition to the new CfD scheme began in 2015.
Offshore wind saw some CfD success in the early 2015 auction rounds with two projects achieving a strike price of between £114.39 and £119.89/MWh. However, CfDs have since been marred by uncertainty with the expected October 2015 CfD round being postponed and ongoing discussions taking place over what technologies should be included. Last November, the previous Energy Secretary, Amber Rudd said “Further support will be strictly conditional on the cost reductions we have seen already accelerating.”
The cost of offshore wind is starting to improve, with some operators announcing costs at £85/ MWh or below. It is thought that a further 10GW of offshore wind could come online in the 2020s if costs are consistently being achieved at less than £100/MWh.
The proposed nuclear plant, Hinkley Point C, has its own Contract for Differences scheme, set at £92.50/MWh (in 2012 money) for a period of 35 years. Because the government is currently deciding on the future for Hinkley Point, a debate has been sparked over the requirement for consistent baseload power that nuclear generation could provide, versus the ability of the UK to meet its energy requirements from a range of sources including large scale offshore wind. Nuclear power has the benefit of being low carbon and consistent in supply, while wind has the disadvantage of intermittency but could bring benefits to both UK industry and security of supply. There is great potential for grid battery storage, which could solve the problem of intermittency, but there are a number of hurdles for the technology to overcome before it can become mainstream.
Independently of the decision that will be made on Hinkley Point, the outlook for offshore wind appears to be positive as it becomes more cost competitive. A map published by Crown Estates, and updated hourly, shows the share of UK electricity being generated by offshore wind at a point in time. At the time of writing, offshore wind was contributing 11% to the UK generation mix. Offshore wind made up 5.6% of electricity generation in Q1 2016 and capacity had increased by 7.5% when compared to the same quarter one year earlier. Meanwhile, the wind industry will be awaiting announcements regarding the government’s plans for the next round of CfD auctions.