For the last year or so, I have been looking at the financial accounts of offshore windfarms, and in particular those developments that have been awarded Contracts for Difference at very low prices. These are said to herald the start of a new era of low cost renewable energy.
The first of these was the 1 GW Moray East, awarded a CfD at £58/MWh in 2017. Unfortunately for those tales of super-cheap power, its 2020 accounts revealed that its construction cost would likely be around the £4 billion mark, putting it pretty much in line with previous offshore windfarms in the UK.
The Seagreen 1 windfarm received an even lower CfD, valued at just £42 in 2019, and the build cost that was announced at around the same time certainly seemed low: £3 billion for over 1 GW (including apparently, the cost of the offshore transmission assets) would have represented a step change from anything seen before, and seemed rather implausible, given the figures for Moray East, a windfarm of similar size, and similarly situated in deep waters off the coast of Scotland.
Unfortunately, the latest financial accounts have given the game away for Seagreen 1, just as they did for Moray East: £1 billion has gone already, making a spend total of £3 billion highly unlikely, given that offshore works had not yet started by the March year end, and onshore ones were still at an early stage – the website for the windfarm reveals that onshore cabling works were ongoing, and that the operations base was still in the early stages of construction.
That being the case, a construction cost of £4 billion seems far more likely than £3 billion. That would represent £4m/MW, in line with earlier windfarms. It would not be at all surprising to see an outcome even worse than that.
The figure below shows the evolution of overall offshore windfarm costs by commission date. The new data for Seagreen has pushed the 2023 value upwards, suggesting that there have been no reductions in cost for five years, and postponing the arrival of super-cheap wind. This is exactly what happens each time we get some new data: the predicted cost revolution recedes further into the distance. With first Moray East and now Seagreen having disappointed, the first low-cost windfarms are now presumably alleged to be the Dogger Bank developments, due for commissioning in 2024 and 2025. But I have little doubt that these will be much more costly in practice too.
This still leaves us with the mystery of how the UK’s new offshore windfarms will make money at the low CfD prices they have agreed. For now, we can only guess.