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Offshore Wind Journal

Steep fall in costs sees offshore wind embedded in industrial strategy

Mon 06 Feb 2017 by David Foxwell

Steep fall in costs sees offshore wind embedded in industrial strategy
Long-term certainty from policy framework had led to important new investments, such as Siemens’ turbine blade plant in Hull

The government in the UK is to commission a report into how it can reduce the cost of green energy as part of its long-awaited industrial strategy, but offshore wind costs are already falling quickly, as a new report demonstrates

A report published on 24 January reveals that the cost of energy from offshore wind has fallen by 32 per cent since 2012 and is now below the joint UK government and industry target of £100 per megawatt hour (MWh) four years ahead of schedule. The report shows high industry confidence of continued rapid cost reduction to below levels set by any other large-scale, low-carbon energy source.

The target, set in 2012, was expected to be met by 2020, but windfarms given final investment decision in 2015/16 are already achieving prices lower than this target. This rapid reduction is tracked in the third annual Cost Reduction Monitoring Framework report, delivered by the Offshore Renewable Energy (ORE) Catapult on behalf of the Offshore Wind Programme Board. The industry is now focusing on further cost reduction, growth and job creation, says the report.

UK Energy Minister Jesse Norman said: “The UK’s leadership in offshore wind clearly demonstrates that it is an attractive destination for renewable energy investment. This growing industry will be an important part of the government’s new industrial strategy, and will be underpinned by £730 million of annual support for renewable energy over the course of this Parliament.

“Thanks to the efforts of developers, the UK’s vigorous supply chain and support from government, renewables costs are continuing to fall. Offshore wind will continue to help the UK to meet its climate change commitments, as well as delivering jobs and growth across the country.”

Co-chair of the Offshore Wind Industry Council Benj Sykes said: “Offshore wind is a big success story at the very heart of the UK’s industrial strategy. The industry is cutting costs much faster than predicted, while creating thousands of jobs and stimulating investment nationwide. But this is a story that is just beginning. We remain committed to delivering further significant cost reduction, while working in partnership with government to put in place a sector deal and build a sustainable industry that will benefit the UK for decades to come. Our industry’s goal is to be cost competitive with other generation sources, and this new data shows that ambition is realistic and that we are well on the way to achieving it.”

Offshore wind costs have fallen sharply through the adoption of larger turbines, increased competition and lower cost of capital. Projects are reaching a final investment decision in 2015/16 with an average levelised cost of energy of £97/MWh, compared to £142/MWh in 2010/11.

The report also revealed that UK content and jobs are a significant focus for the UK’s offshore wind sector, with the industry working hard to maximise its UK economic benefit. Supply chain plans required under the contracts for difference process are now delivering significant growth for UK manufacturing, and the report identifies further potential to increase both UK content and jobs through a more co-ordinated approach to industrial strategy.

The report was published as the UK government said it wants to find ways to further reduce the cost of green energy, including from offshore wind, but reconfirmed that reducing emissions is “settled policy.” It also wants to “closely connect” energy policy with opportunities for manufacturing and job creation.

In a Green Paper launched on 23 January 2017, the government set out a road map to minimise business energy costs. To do this it will commission a review of the opportunities to reduce the cost of achieving decarbonisation goals in the power and industrial sectors. The review will cover how best to support greater energy efficiency, and examine the scope to use existing instruments to support further reductions in the cost of offshore wind once current commitments have been delivered. It will also examine how the government can best work with Ofgem to ensure markets and networks operate as efficiently as possible in a low carbon system.

“While there is a clear role for the government in energy policy, markets are also crucial, inventing and spreading new techniques for saving energy, new and more efficient means of energy generation and storage, and new ways to finance clean technologies,” said the Green Paper. “It is the private sector that will ultimately be the driving force behind our low carbon economy.”

The report said the transition to low-carbon – and the securing of energy supplies – “must be done in a way which minimises the cost to business and domestic consumers.” It noted that although energy costs on average account for 3 per cent of UK business expenditure, the impact is uneven. There are 15 sectors in the economy – including steel, chemicals, glassmaking and ceramics – where energy costs represent more than 10 per cent of total business expenditure.

“Subsidies and other forms of state support have played an important role in creating markets for new technologies and driving down their costs. But it is important that we move steadily to an operating model in which competitive markets deliver the energy on which our country depends,” said the Green Paper, noting that in renewable technologies, such as offshore wind, the long-term certainty of the policy framework had led to important new investments, such as Siemens’ turbine blade plant in Hull, creating a thousand new jobs and sustaining a supply chain of smaller businesses servicing the industry.

“The industrial strategy – and the combination of the policy portfolio of the former energy and climate change ministry with the business and industrial strategy brief – allows a more explicit strategic set of connections to be made,” it concluded.

RenewableUK welcomed the government’s commitment to “support industries of the future” in its modern industrial strategy. This includes delivering affordable energy and clean growth, investing in science, research and innovation, upgrading infrastructure and boosting trade and inward investment.

RenewableUK’s executive director Emma Pinchbeck said: “The Prime Minster has taken a bold step by focusing specifically on innovative new industries where the UK is leading the world, and which are challenging the old order. That’s exactly what our wind, wave and tidal energy industries are doing by delivering affordable energy and clean growth – key pillars which Theresa May has set out in her bold vision for modern Britain. Moves to increase the use of energy storage and battery technology – one of the most exciting fields which our member companies are pioneering – with the creation of a new research institute will also ensure renewables remain at the forefront of our power generation. The global renewable energy market is worth US$290 billion a year, so it’s crucial that the final industrial strategy provides a strong sector deal for our wind and marine technologies.

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