Sep 11, 2017

Renewable energy case boosted by sharp subsidy fall

The economic case for renewable energy in the UK was given a strong boost on Monday as an auction to provide electricity from offshore wind farms showed sharp falls in subsidy costs.

The cost of subsidies to the UK's offshore wind farms in contracts awarded in the auctions dropped by more than 50 per cent and is now well below the price the government has guaranteed for energy from the planned Hinkley Point nuclear power plant.

Three offshore wind projects have won contracts from the government in the latest auction for "less established technologies", which was also open to schemes such as tidal but excluded solar and onshore wind. 

The price of electricity guaranteed to offshore wind developers has dropped to as low as £57.50 per megawatt hour — below even the most optimistic forecasts from analysts and a significant fall from the average £117.14/MWh awarded to offshore schemes in the last comparable subsidy auction in 2015. 

Analysts had expected developers to bid for subsidies in a range of £60-£75/MWh, reflecting a fall in construction costs as the offshore wind industry has matured.

Developers such as Dong Energy of Denmark, which is behind one of the three successful schemes, are also installing larger, more powerful turbines. 

The results of the latest "contract for difference" auction published on Monday were welcomed by supporters of renewable energy, who argue offshore wind and similar technologies can become the foundation of the UK's energy policy, as the government strives to meet carbon reduction targets. 

Hugh McNeal, chief executive of RenewableUK, a trade body, said: "We knew today's results would be impressive, but these are astounding."

The cost of subsidies is only one factor in retail electricity prices and the result of the auction may not directly lead to a reduction in consumer bills.

The latest "strike price" for offshore wind, which is guaranteed for 15 years and rises with inflation, is also substantially lower than the £92.50/MWh controversially promised by the government to the French and Chinese developers of the new Hinkley Point C nuclear power plant.

The Hinkley price, which also rises with inflation and is already worth closer to £100/MWh, has been secured for the first 35 years of the plant's operation. It was set in 2012. 

Doug Parr, chief scientist at Greenpeace, tweeted that the UK government's decision to proceed with Hinkley Point C "now looks one of the worst in living memory".

But nuclear developers insisted their technology should not be compared to intermittent renewables, which can only be relied on when the wind is blowing or the sun is shining. The UK needs a mix of technologies to keep the lights on, they argued. 

"New nuclear remains competitive for consumers who face extra costs in providing back-up power when the wind doesn't blow or the sun doesn't shine. There are also costs of dealing with excess electricity when there is too much wind or sun," EDF, the French developer behind the Hinkley plant, said ahead of the auction results. 

"The UK needs a diverse, well-balanced generation mix of low carbon generation and storage solutions." 

A total of 11 energy projects worth up to £176m a year were awarded contracts in the auction. Of the three offshore wind schemes, two were guaranteed a price of £57.50/MWh and a third a higher price of £74.75/MWh. Developers bid in at the price at which they believed they could deliver their schemes. The first offshore wind farm has to be built by 2021-22.

Other successful projects included "advanced conversion technologies" — a method of treating waste. No tidal projects received contracts, which has already triggered a warning from one developer, Edinburgh-based Atlantis Resources, that it could shift its focus to other countries that are more supportive of the technology unless it is able to negotiate a bespoke deal with the government.

The eleven projects will collectively generate three gigawatts of electricity, enough to power 3.6m homes, the government said.

However, critics of UK energy policy argue that the system is now wholly reliant on subsidies, which are passed on to consumers via their energy bills.


Financial Times

by Nathalie Thomas