The recently published proposals for Great British Energy could radically reduce the costs of offshore wind compared to what would otherwise happen under the increasingly expensive existing way of building offshore windfarms in the UK. This will be very important for rolling out the large number of GWs of offshore wind that are needed to meeting the exacting targets for clean energy by 2030.
Under the Great British Energy Company concept (see HERE) the initial pathway of the new offshore windfarms will be developed and owned by the state company, Great British Energy, and paid for by public investment. Projects will (I would expect) then be sold off through a competitive tender system based on what price developers put forward to be paid for the electricity produced by the projects. The electricity will be sold to the state, as is done at the moment through the ‘contracts for difference’ (CfD) system.
Why is this the case that the Government participation will make the projects much cheaper? Essentially, the Government will be taking a lot of the risk currently facing private capital when they decide, under the present system, to buy a lease for some land on the seabed for an offshore windfarm. That is a ‘risk’ investment for a start which the developers have to pay. The Crown Estate may get the money, but in effect the energy consumer will be paying that money back to the developer later on through their bills, plus a lot of interest to pay for taking on the project ‘risk’. But the risk costs do not end there.
Under the pre-existing system for building offshore windfarms the developers have to take the risk, and bear the (often greatly unknown) costs, of researching a project. They have to investigate the sea bed, the grid connection. They will be dealing with the many environmental issues before a developer makes a planning application (with all the potential delays that this may involve). In some cases the project might not even happen.
This means that, under the present system, a private developer (these days, in effect, big multinational corporations) is going to be paying a lot of money for quite a bit of time either for shareholders ‘equity’ capital, or borrowing money off banks. Then after these years of effort they have to bid a price for the electricity they will be paid in the form of a contract for difference (CfD). The fact that the developer has to take all these advance risks means that they are going to expect to earn a lot of extra money on top of the costs of the construction and operation of the scheme. That means that the electricity consumer will have to shell out a lot of money to pay for these risks, even before the costs of the turbines and other parts of the construction are taken into account.
As Adam Bell, a former Energy civil servant, has commented HERE ‘If leases are awarded competitively as part of a bundle with a CFD, a planning consent and a grid connection via a site-specific auction this would represent the best value to billpayers’
If the new system to be run by Great British Energy is like this then offshore wind can be delivered with considerable lower costs than is likely to be the case through the current system. That seems a ‘no-brainer’ to me. It also looks like a ‘no-brainer’ because it has been done this way for many years in Denmark. They have put a series of ‘oven ready’ projects out for tender and companies have put in bids for the electricity price per MWh of generation that they will do the project for. The lowest tender wins.
This is a sort of public intervention that the British neo-liberal state has been loathed to do, preferring instead the consumer to pay higher bills because it looks more like ‘trading’ and ‘markets’ – trading and markets at the consumer expense!
Of course, despite this promising programme it is a great pity that so much consumer money is going to frittered away on big and small nuclear power and carbon capture and storage schemes that will lead not very far. But at least this offshore wind strategy designed by Miliband looks like the best thing to hit offshore wind in the UK.
By David Toke…reproduced from his ‘Energy Revolutions’ substack blog at https://davidtoke.substack.com/