Energy giants decide that big offshore projects are not financially viable
With wind power still accounting for only 3.2% of Britain’s electricity, the country is heading into the winter with a tiny reserve generation margin of just 4%
[…] TAG’s demise is indicative of more than just a start-up running out of luck. It is an example of what industry sources say is a dawning reality that the government is loath to admit to: 13 years after the installation of the first offshore turbine in Blyth harbour in northeast England, the offshore wind industry is still struggling to take off. It may never.
This sounds counterintuitive. Thanks to billions in taxpayer subsidies, more wind turbines churn above British waters than in the rest of the world combined. But behind the headline a more nuanced picture emerges.
Siting wind turbines at sea is the priciest way to produce electricity. A modern gas-fired station of equal capacity can be built for one-fifth the price and run round the clock, unaffected by the uncertain nature of wind. Yet the Department of Energy and Climate Change put offshore wind power, with nuclear reactors, at the heart of its £200bn plan to replace fossil-fuelled power stations with cleaner alternatives.
These next-generation plants are wildly expensive but we will be compensated in three ways, the government has long argued.
One, Britain will slash its reliance on imported fuels and thus ensure greater “security of supply”; two, the revolution will bring with it a cornucopia of “green jobs”; and, three, carbon dioxide emissions will plummet.
All three promises now look shaky. Last week, National Grid revealed that going into this winter Britain has a “reserve margin” — a measure of the slack in the system — of just 4%, the lowest since 2007.
The squeeze has been created by the forced closure of polluting old plants and the unwillingness of industry to build new ones amid political meddling in the subsidies needed to underwrite them.
And what of all those green jobs? They certainly have not materialised in the way Gordon Brown envisaged when he predicted that 400,000 new posts would be created by Britain’s energy revolution. […]
Around the time TAG was undergoing its expensive overhaul, the Treasury had begun to take a keener interest in what the energy department was up to. George Osborne was alarmed at the cheques department mandarins were signing.
His solution was the levy control framework, which set a ceiling of £7.6bn on public funds available for subsidies for all renewable energy — solar and wind, biomass and geothermal — up to 2020.
Until now, offshore projects have secured deals guaranteeing them £155 or more for each megawatt hour produced — roughly three times the wholesale electricity price. The inflated rates were blended into household energy bills.
Led by the Treasury crackdown, the energy department has cut both the length of subsidy guarantees — from two decades to 15 years — and the level of support, from £155 per megawatt hour towards what will probably be about £140.
The aid cuts convinced several energy giants to slash their offshore plans or pull out entirely.
Centrica completed its exit from all new projects in July when the British Gas owner binned its planned £4bn Celtic Array off Anglesey. Last month, RWE Innogy abandoned its Galloper scheme off the Suffolk coast after its partner SSE pulled out, as well as three others, citing insufficient financial returns.
Mark Powell, head of energy at the consultant AT Kearney, said: “The Treasury seems to be losing its stomach for supporting large-scale offshore wind development. Given growing concerns around energy affordability and UK competitiveness, one must start to question the future of [the industry].”