Bank chief flags UK offshore wind delivery fear

Henry Evans

13-Nov-2014

The head of offshore wind at the UK’s Green Investment Bank (GIB) has warned that the country’s offshore wind sector could be entering a ‘boom and bust’ era as close to 5GW of projects jostle for money from the government’s new contracts-for-difference (CfD) funding scheme.

“I am concerned that there’s potential for this thing to go into a boom and bust kind of cycle perhaps in 2017-2018 and beyond that,” said Nick Gardiner of the GIB, speaking on Wednesday at the RenewableUK conference in Manchester.

Four or five large offshore wind farms are believed to be competing against each other in the first auction of the new CfD scheme, which opened to applicants last month ahead of the result in April 2015.

Offshore wind projects have been categorised in a group of ‘less established’ technologies that will compete for a total pot of £235m (€296.2m), enough to bring online 700 or 800MW of new renewable generation, according to the trade body RenewableUK.

“I think the market expectation is that there’ll be one offshore wind deal which will come out,” said Gardiner.

And Gardiner fears there could be repercussions for the three or four projects that will miss out on investment in this round.

“I have a genuine concern as to what’s going to happen with those projects having invested £50 million plus in each project to date,” said Gardiner.

Gardiner also has concerns that projects falling by the wayside will impact negatively on the industry’s ambition to drive down capital costs.

Failure to do so will potentially result in future projects eating into a larger slice of the government’s overall renewables budget to 2021, called the Levy Control Framework, which could in turn limit the number of offshore developments benefitting from subsidies.

“Having had the round three framework and now suddenly creating this new obstacle at the last minute is pretty disastrous, so there is several tens of millions of debt equity if not hundreds that is going to be stranded,” said Jerome Guillet from Green Giraffe renewable financial advisors.

He added that future projects as a result would not be large enough to enable the economies of scale required to deliver cost reductions, with the levelised cost of power generated 20-30% higher than could be achieved.

To date, the 1.14GW Moray Firth offshore wind project in Scotland alone has declared it would be applying for a CfD in the first round of auctions.

But a number of projects that have secured planning consent this year from the appropriate government authority are still awaiting investment decisions as they attempt to secure financial backing from the government, most likely through the CfD scheme.

These include Mainstream Renewable Power’s 450MW Neart na Goithe project, the 1GW Inch Cape offshore development, the 1.2GW first stage of the East Anglia array and the 1GW first leg of the Firth of Forth project being developed by Seagreen and SSE.

A seeming lack of confidence in the new subsidy regime has caused RWE to cease work on the 340MW Galloper offshore project after realising it would not be completed in sufficient time to qualify under the existing Renewables Obligation (RO) funding programme that will be phased out by the middle of 2017.

Several offshore wind projects due to come online before the end of the decade were awarded government investment contracts earlier in the year ( see EDEM 23 April 2014 ). Henry Evans



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