Energy created from offshore wind farms will become cheaper than new nuclear energy for the first time in history.
In the latest auction, two offshore wind firms have secured state-funded contracts for 2022/23 after bidding for a guaranteed price of £57.50 per megawatt hour for 15 years accounting for inflation. This is less than half the price paid in the 2015 auction for clean energy, when offshore wind projects won with bids of between £114 and £120 per megawatt hour.
In comparison, the controversial Hinkley Point C nuclear plant in Somerset, secured subsidies of £92.50 per megawatt hour in 2012.
The huge drop in price for offshore wind has been helped by lower commodity prices, improved infrastructure, higher voltage cables and alliances among UK providers which has pushed out smaller companies. This has helped companies achieve economies of scale to drive down prices.
Matthew Wright, Managing Director of Dong Energy, in the UK said “People rightly focus on turbine size that is undoubtedly the biggest cost driver. With bigger projects you get economies of scale. With fewer turbines generating more power, the costs of installing and maintaining wind farms have also fallen.”
The remarkable drop in price for wind power will increase scrutiny on the UK’s energy policy, especially in reference to the Hinkley Point project, which has been plagued with delays and rising costs. The government has promised to pay the French and Chinese developers an inflation linked price of £92.50 per Megawatt hour for 35 years.
Analysts have, however, insisted that there will still be a need for new nuclear power even if other forms become cheaper due to the sporadic nature of wind and solar energy in Britain.
Speaking of the auction results, EDF, The French energy Giant behind Hinkley, said: “New nuclear remains competitive for consumers who face extra costs in providing back-up power when the wind doesn’t blow or the sun doesn’t shine. There are also costs of dealing with excess electricity when there is too much wind or sun”
EDF also added that energy created from nuclear plants will become cheaper as the market advances in a similar style to offshore wind. Peter Kiernan, a lead energy analyst at the Economist Intelligence Unit said that today’s announcement showed that the trajectory of cheaper renewable energy technologies is irreversible.
The news of such a large slash in price for offshore wind will still be welcome given the large potential for offshore wind generation around the UK, combined with the government’s hesitancy in allowing major expansion onshore.
Minister for Energy and Industry, Richard Harrington, said: “We’ve placed clean growth at the heart of the Industrial Strategy while cutting carbon emissions. The offshore wind sector alone will invest £17.5bn in the UK up to 2021 and thousands of new jobs in British businesses will be created by the projects announced today.”