UPDATED: Over 3GW of UK offshore wind power secures subsidy

11 September 2017 14:13 Source:ICIS

Three major offshore wind power projects totalling 3.2GW of capacity are set for construction in the UK following the results of the latest contracts for difference (CfD) auction on Monday morning.

Innogy and Statkraft’s 860MW Triton Knoll project, 1.38GW of capacity at DONG Energy’s Hornsea 2 site and 950MW of capacity at EDP Renewables’ Moray East site have been awarded investment contracts by the UK government. All are due to come online in the early 2020s.

The CfD enables developers to guarantee a strike price for the sale of the electricity they generate, with energy consumers topping up any revenue below the strike price that is not secured from the wholesale market. Revenues that exceed the strike price are returned by the generators.

The results mean that both Hornsea 2 and Moray East will become the cheapest offshore wind farms built in the UK so far. Both sites were awarded contracts at a strike price of £57.50/MWh while Triton Knoll was awarded its contract at £74.75/MWh.

Each project will be built in three separate phases.

DONG confirmed that Monday’s announcement had triggered a final investment decision (FID) on Hornsea 2. The company expects operations to begin in 2022.

“Successive governments deserve great credit for providing the certainty for continued investment in offshore wind, enabling it to become the thriving renewable industry it is today,” managing director for DONG UK Matthew Wright said.

Innogy said that offshore construction on Triton Knoll is scheduled to start in 2020 ahead of the start of commissioning in 2021. Commercial operations at Moray East are due to begin in 2022, EDP Renewables said in a statement.

Eight other projects totalling 150MW of capacity were also successful in the auction. The largest of this was the Grangemouth renewable energy plant, which won a contract for 85MW of dedicated biomass and CHP (combined heat and power) capacity.

Cost reduction

“Offshore wind’s success was undoubtedly buoyed by the decreasing costs of capital in the sector and the wider downward trend of subsidy levels witnessed in other European tender processes,” partner in renewables at law firm Norton Rose Fulbright Robert Marsh said.

However, there were calls for the government to revisit its current policy of not supporting new onshore wind and solar. As a result of the policy, both technologies were excluded from participating in the auction.

“We hope to see all renewable technologies getting the chance to bid in future auction rounds and to demonstrate just how cheap they can be,” Scottish Renewables’ deputy chief executive Jenny Hogan said.

The strike price achieved by Moray East and Hornsea 2 is half that achieved by Mainstream Renewables for its Neart na Gaoithe project in the only previous CfD auction in February 2015 (click here to read story).

It is also significantly cheaper than that for EDF’s 3.2GW Hinkley Point C nuclear power station at £92.50MW/h. Hinkley Point is the only conventional thermal power plant to have been awarded investment through the CfD mechanism.

Industry sources have said previously that the government could review its plans for new nuclear if offshore wind costs undercut those of nuclear (click here to read story).

Further information on the successful projects can be found by clicking here . henry.evans@icis.com

By Henry Evans