Offshore wind is in some ways the most desirable of renewable resources, because the wind blows more consistently and more strongly there than it tends to on the land (there are exceptions―for example in the US 'wind corridor'). Adding offshore wind to a generation mix reduces overall variability. The first offshore wind farms produced expensive electricity, but the costs are falling fast.
From CarbonBrief [an oldish report, but still relevant]
The UK is to get its first subsidy-free offshore windfarms after the government awarded contracts today for nearly 6 gigawatts (GW) of capacity, at prices below those it expects on the open market.
The prices are so low that the windfarms could generate electricity more cheaply than existing gas-fired power stations as early as 2023, Carbon Brief analysis suggests. Even last year, renewables had not been expected to reach this tipping point until around 2030.
The 12 schemes awarded contracts today include six offshore windfarms, totalling 5.5GW, and 0.3GW of onshore windfarms on remote Scottish islands. Together, they are expected to produce some 29 terawatt hours (TWh) of electricity each year, equal to 9% of the UK’s total output in 2018 and sufficient to power a quarter of the country’s 26m homes.
The record-low prices will see projects due to start operating in 2023/24 coming in at £39.65/MWh (in 2012 prices, £44/MWh [US$64] adjusted for inflation) and those for 2024/25 at £41.61/MWh. These are some £8-9/MWh below the government’s “reference price”, the level it expects to see for electricity on the open market in each year.
If the market follows the government’s reference price expectations, then the new renewable schemes will pay more than £600m towards consumer bills by 2027, instead of receiving a subsidy.
Today’s auction is the third to award contracts for difference (CfDs) to support low-carbon electricity supplies. Winning bidders are paid a fixed “strike price” for the electricity they generate over the course of 15 years and can then continue to operate on the open market.
During the contract period, projects are paid the difference between a reference wholesale price of electricity and their strike price. If this strike price is higher than the reference price, projects receive a subsidy to make up the difference, with the cost added to consumer bills. If it is lower, the developer pays back the difference, reducing bills.
In the first auction, in 2014, strike prices for offshore wind, onshore wind and solar surpassed expectations, coming in well below what had been expected. The second auction, in 2017, saw offshore wind strike prices effectively halve, making the technology cheaper than newbuild gas-fired power stations.
In today’s third auction, expectations have been confounded again. The 12 projects won support at prices of around £40/MWh, whereas a Twitter poll of energy analysts had expected £47/MWh.
The new record-low prices mean these new offshore windfarms will also generate electricity more cheaply than existing gas-fired power stations, Carbon Brief analysis suggests. The only costs these gas plants face are for fuel, operations and maintenance, network access and CO2 emissions, since the costs of construction have already been sunk.
This is shown in the chart below, with strike prices awarded to offshore wind (red) seen to have declined dramatically over time, undercutting the estimated price of electricity from existing gas plants (dark blue), which has remained steady and is expected to rise slowly in the future.
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