The cost to energy bill payers of supporting new offshore wind farms looks set to shrink to zero.
Since record low state-backed subsidies fell below the market price for the first time new renewable energy projects are due to be built at no extra cost for millions of British energy bill payers.
The UK is set to embark on a remarkable journey of growth in the offshore wind sector. The crown estate has begun the first leasing round for offshore windfarms in a decade to bring in a new generation of wind projects eventually expected to generate an investment of £20bn.
The intention is to auction off new seabed rights in the waters around England and Wales to wind power developers. The leasing scheme allows up to 7GW of electricity generation capacity which is enough to meet the needs of more than 6m homes.
The Crown Estate will reap a record windfall as a result of this leasing round which could potentially generate hundreds of millions of pounds. Surplus revenues from this will be passed to the treasury.
Energy companies are keen to profit from the UK’s growing offshore wind sector and so the auction is expected to be highly competitive.
Currently, the UK has got 8.5GW of offshore wind generation capacity which provides more than 8% of the UK’s annual electricity needs. The government has agreed to support the industry to expand the UK’s offshore wind capacity to 30GW by 2030.
The cost of supporting wind turbines has dropped by almost a third in the last two years, the results of a government subsidy auction have shown leading to record lows of less than £40 per megawatt per hour (MWh).
Because the guaranteed price for wind power is so low the cost of supporting the new generation of offshore windfarms will not add any additional costs to energy bills.
The Prime Minister, Boris Johnson, said:
“It’s great news that millions more homes will be powered by clean energy at record low prices. Seizing the opportunities of clean energy not only helps to protect our planet but will also back businesses and boost jobs across the UK.”
New subsidy contracts will be handed to energy giants including another six offshore windfarms off the coasts of England and Scotland. The projects are expected to start powering UK homes within the next four years.
Most of the projects winning a subsidy contract will receive as little as £36.65 for every megawatt hour of electricity they produce with the most expensive projects costing only slightly more at £41.61/MWh.
Hugh McNeal, the chief executive of RenewableUK, said:
“The results marked a new era of cheap power, as the cost of offshore wind is now lower than the expected market price for power. Reaching that ‘zero-subsidy’ level is made possible by the certainty these long-term contracts provide.”
Offshore wind has dropped below the cost of fossil fuels in a little more than 5 years. In the early days of offshore windfarms contracts were worth around £120/MWh.
Kwasi Kwarteng, the energy and clean growth minister said:
“The support we’re announcing today will mean that over 7m more homes will be powered by renewable energy as we decarbonise our energy system – crucial as we continue on the road to net zero emissions by 2050.”
The latest record-breaking auction for offshore wind subsidies comes two years after two windfarms, the Hornsea 2 project off the Yorkshire coast and the Moray offshore windfarm in Scotland achieved a guaranteed price for their electricity of £57.50/MWh through a similar auction.
Major energy companies hoping to profit from the offshore wind boom are being attracted by the plummeting cost of offshore wind.
RenewableUK, the industry’s trade body has estimated that the next generation of offshore wind development would bring almost £21bn of investment in today’s prices, and support about 9,000 full-time jobs.
Hugh McNeal, chief executive of RenewableUK, said of the Crown Estate auction:
“These powerhouses of the future will create thousands of highly skilled jobs, continuing the rapid regeneration of our coastal communities, as well as benefiting our UK-wide supply chain.”
In the past the Crown’s chief revenue stream from Offshore wind was received as a percentage of the windfarm’s income once it began selling the electricity it generated. This time an “option fee” will be required for the leasing round which will be used as the basis for a rent agreement over 10 years.
Huub den Rooijen, a director at the crown estate, said:
“the new leasing round plans had been agreed through extensive engagement with the market and stakeholders, to deliver an attractive, fair, objective process, which helps to balance a range of interests in the marine environment”.
He went on to say that:
“the competition would open the next chapter in the UK energy industry’s remarkable transition”.
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