A much faster than expected fall in costs is likely to see UK offshore wind energy emerge as the renewable energy winner of 2017 with continued expansion but intense competition between developers predicted in the years ahead. Jon Herbert reports.

The Government is holding its first green energy auction in two years this spring; two more will follow shortly. The big winner is expected to be offshore wind energy following a dramatic fall in costs which ministers see as evidence that large-scale public subsidies are no longer needed.

UK offshore wind costs have been cut by circa one third in the half-decade since 2012. However, the wider picture could be more complicated. Intense competition is predicted between established offshore wind farm developers, who have benefitted from the UK’s commitment to offshore wind, and more recent newcomers.

There is also UN concern that just as renewables such as wind and solar energy are ready to make a global commercial difference in their own right, many countries may be wavering in their commitments to decarbonise world energy generation negotiated in Paris in 2015.

Meanwhile, offshore wind power could be used to increase output from the UK’s depleting North Sea oil and gas fields.

Technical and financing triumph

Advances in technology have been credited for cost falls which were unforeseen just a few years ago. The results have been so impressive that it is suggested wind’s current performance could put the affordability of new nuclear and some key wave, tidal and biomass projects into question.

The key factor behind continuing long-term commercial success could be the ability of developers — and their industrial supply chains — plus operators to keep costs decreasing. They will have to do so in an industry that is seeing larger and larger turbines clustered in bigger wind farms working in deeper waters further offshore in increasingly challenging metocean environments and metrological conditions. However, another factor could be the introduction of debt rather than equity financing that has now been used on some of the most recent large offshore wind projects.

Continuing trend

Early this year, a report from the Offshore Renewable Energy (ORE) Catapult to the Offshore Wind Programme Board showed that the “levelised” cost of UK offshore wind has fallen by 32% since 2010, putting it below the combined Government and industry target of £100 per megawatt hour (MWh) four years ahead of schedule. (There is speculation that the Government’s £85/MWh target could be met well before the current target date of 2026).

The report also predicts growing confidence that technical development and a close collaborative effort by the industry will continue to see costs fall across the supply chain in the years ahead. There is a high level of UK content in the supply chain.

The Government sees the continued success of the offshore wind industry as fundamental to its new industrial strategy as well as in attracting new investment and helping to meet its climate change commitments, creating jobs and delivering economic growth.

Its first Contract for Difference (CfD) auction this spring has a budget of £290 million — the combined total for all three in 2017 will be £730 million.

Risk to Paris Agreement

A recent report from UN Environment adds that globally a record level of new renewable energy capacity was created in 2016 at a cost almost 25% lower than that for 2015. It adds that the increase in renewable capacity was almost double the figure invested in fossil fuels. Its report has found that 138.5 gigatonnes of new wind, solar and other renewables were created during 2016, a rise of some 8% over 2015.

Additional figures from the International Energy Agency also refer to the use of renewables as a principle reason behind the flat-lining of greenhouse gas (GHG) releases in 2016, despite economic growth of 3.1%. Europe was responsible for a 3% increase, with the UK investing $24 billion overall in renewables compared to Germany’s $13.2 billion.

However, the UN Environment authors are concerned that just at the point where costs are plummeting, some countries are reducing their green energy investment programmes. They are worried that meeting the Paris structural climate change agreement struck between some 200 countries in December 2015 to offset the worst predicted impacts of climate change ascribed to man-made GHG emissions could be at risk.

Offshore construction figures

A further breakdown has been provided by analysts working with construction data. They have found that offshore wind farms alone represent 42% of UK construction contract value in the utilities and power sector; as a percentage of total infrastructure, wind farms account for 21%. This is a massive change since 2013 when offshore wind farms represented only 7.5% of the sector’s annual construction value. The analysts also forecast that this trend can be expected to continue with an estimated £23.2 billion of construction contracts identified in the planning pipeline.

Beatrice, Galloper and East Anglia ONE are three major projects that together made a major difference in 2016.

Offshore giants

Galloper, built at a cost of £1.5 billion 25 kilometre (km) off the Suffolk coast, has 56 advanced turbines standing at a maximum blade tip height of 180.5m above the sea (London’s Gherkin is 180m tall) that can power the equivalent of 336,000 homes. Its focus has been on reducing the cost of energy production not only through improved technology and supply chains but also lower cost debt financing which was secured before construction began.

Debt rather than equity financing is said to be cheaper at an earlier stage. Careful de-risking of the project meant that it was able to attract a consortium of commercial banks, plus the European Investment Bank at the final investment decision (FID) stage. The approach has been used on Beatrice and Dudgeon wind farms.

The project has also benefitted from the use of components made and assembled in the UK, a bonus for an industry expected to attract investments totalling £20 billion by 2020. Operational management will also be based in the UK.

Beatrice, 13.5 km off the east Caithness coast in the Moray Firth is being constructed at a cost of £2.6 billion and has 84 turbines which are due to generate 588 megawatt (MW) from 2019 to power the equivalent of 450,000 properties. According to the WWF Scotland, the project will almost quadruple Scotland’s offshore wind capacity and reduce GHG emissions; Scotland’s waters are home to some 25% of Europe’s offshore wind resources.

East Anglia ONE will have 102 turbines built off the Suffolk coast at a cost of £2.5 billion with 50% UK supply chain contents producing 714MW, delivered through six onshore underground cables to power the equivalent of 500,000 homes.

WIN-WIN wind

The Wind-powered Water Injection (WIN-WIN) project supported by a group of leading oil and gas majors and the UK’s ORE Catapult is focusing on using small offshore floating wind turbines to generate the electricity needed to power water injection systems that enhance oil recovery in wells remote from their host platforms. One aim is to reduce the environmental footprints normally involved with conventional injection.

After a year of development and evaluation, the project team have concluded that the concept is feasible and competitive on cost grounds. In the next two years, the electrical systems used will be refined and monitored to see how they perform with the variable power associated with wind. Pilot and full-scale prototype stages should follow by 2020.