The UK can be proud of its world-leading offshore wind industry; we are home to the world’s largest offshore wind farms and until recently we had the largest capacity in the world. As a small island nation, our geography serves us well. But it is not just our windy coastline and shallow sea-bed that has propelled our development of offshore wind: it is a strong partnership between government and industry, bringing stable, long-term policies that drove down the cost of projects and enabled a rapid boom.
Offshore wind is now one of the cheapest ways to generate electricity and wind farms off our coastline are already generating the equivalent amount of electricity as a gas or nuclear power station. But it hasn’t always been this way.
When offshore wind first graced our shores, it was an expensive, un-scaled technology. In 2011, the Government challenged the sector to reduce costs, and in 2012 the Cost Reduction Taskforce, a joint industry-Government initiative, set a target to reduce the levelized cost of energy to below £100/MWh by 2020, down from £149 – 191/MWh. The industry smashed expectations, and achieved that in 2017.
Contracts for Difference (CfD), a flagship UK policy, has given investors certainty on project returns, in turn lowering the cost of capital. This innovative auction mechanism, now used widely internationally, can be hailed as a major driver in lowering costs beyond imagination; by more than two-thirds in just five years.
However, recent global events from the pandemic to Russia’s war in Ukraine have increased the construction costs of all major infrastructure projects, including critical energy generation, with some developers reporting cost increases of up to 40%. One major Swedish developer stopped construction of a project that could have powered 1.5 million homes, citing increased costs as the reason. And despite repeated warnings from industry that the parameters in the latest CfD auction were not reflective of these current conditions, the administrative strike price was not changed and as a result, there were no bids from offshore wind developers.
This is important because the UK has bet big on offshore wind. A long-term partnership has been key to setting these ambitious targets. The Sector Deal, signed in 2019, was a landmark agreement between industry and Government; led by the Offshore Wind Industry Council, a target of 30GW by 2030 was agreed, alongside other targets from increasing local content in the supply chain to improving the diversity of the workforce. In 2020, the target was raised to 40GW, and in 2022, as part of its Energy Security Strategy the UK Government further raised the target to 50GW by 2030, around four times our current capacity.
To meet this every year of the next decade is crucial, and due to a finite number of skilled workers and limited supply chain capacity, from vessels to cable manufacturing facilities, it may not be possible to catch up from delays like the recent auction round.
Ambitious targets are welcomed but must be backed by action.
When the Government and private sector work together it unlocks investment and innovation, boosts the economy and benefits people and businesses around the country. We have shown the power of partnership, and can use this model to gain global advantage in technologies like floating offshore wind, hydrogen, carbon capture, usage and storage, and Small Modular Reactors, reaping the rewards.
Energy Matters: People, Power, Prosperity is industry’s proposal for a new partnership with Government to work together to deliver the actions needed to transform our economy. It sets out the frameworks needed to unlock private sector investment that is expected to provide 70% of the £1 trillion required to meet Net Zero.
As the global energy transition accelerates, we have a once in a generation opportunity to once again lead the world and reap the economic benefits. We have done it before, and we can do it again, but we must act now.