Thursday, 24 April 2014

How much more does offshore wind cost?

The Tories announced today they will scrap onshore wind turbine subsidies after the next election because we already have enough projects in the pipeline to meet our targets [1]. This is true as far as 2020 [2] - but the world does not end then and we have a lot further to go to achieve our 2050 targets. Critics argue that onshore wind is the cheapest of the renewable energy sources and we will end up paying more for offshore wind if onshore is not financially viable. I thought I would do a quick check to see how much more expensive offshore wind is compared to onshore.


The old system of subsidies (for large scale generating plant) is based on Renewable Obligation Certificates (ROCs). Renewable generators are granted ROCs depending on what they deliver - currently 0.9 ROCs/MWh for onshore wind and 2 ROCs/MWh for offshore wind. The supply companies are required to buy enough ROCs to cover their obligation so the price of these is variable; lately it has been about £40 [3]. That means offshore wind gets £80/MWh or 8p/kWh generated while onshore wind gets £36/MWh so 3.6p/kWh [4].

Under the new Contract for Difference scheme the subsidy paid is the difference between the strike price granted by the government to the generator and the reference price, which is variable based on the market day ahead hourly rate [5]. Lately this has been around 4.2p/kWh [6]. The strike prices for onshore and offshore wind are 9.5p/kWh and 15.5 p/kWh [7] so the subsidies are currently worth 5.3p/kWh and 11.3 p/kWh - even higher than with the ROCs. On the other hand this subsidy level is not guaranteed. The strike price is linked to inflation and if the market prices for electricity go up faster than this then the effective subsidy goes down. None the less, whatever happens to the reference price it still gives offshore wind 6p/kWh more than onshore wind.

These prices and some others are summarised in the table below.


ROC subsidy p/kWh
2014/2015
(based on £40/ROC)
CfD subsidy p/kWh
(based on 4.2p/kWh reference price)
lasts 15 years for renewables, 35 years for nuclear
Onshore wind 3.65.3
Offshore wind811.3
Large scale ground mounted PV5.67.8
Biomass (converted, without CHP)66.3
Nuclear (recent announcement for Hinkley Point C [8] )-5.05


Note that these subsidies are for energy delivered to the grid - wind farms don't earn cash for just having the wind blow the blades around, they have to sell the power. There are exceptional circumstances when generators are compensated for not being allowed to deliver due to grid constraints but these benefit all, not just renewable energy generators (see Why do we pay wind farms to switch off?)

Not all of our electricity comes from wind. If a quarter came from offshore wind, which would be a good target to aim for, then the extra 6p/kWh comes to about 1.5p/kWh extra on our bill - about £60 a year.

Offshore wind costs more because the engineering is much more difficult. The environment is harsh and corrosive. Construction and maintenance are more difficult and also use more steel and concrete.

We are getting rather desperate for new generation capacity (see Energy crunch time for the UK). That doesn't have to be wind of course - we could build more gas, coal or biomass power stations instead. Recently, we have been using more coal than gas because of the relative cost of gas versus coal. However, current emissions performance standards prohibit building any more coal plants without carbon capture and storage (CCS) [9]. That is a good thing too because coal plants generate more than twice as much carbon emissions as gas plants. However, CCS is also very expensive and still nowhere near commercial rollout. There are two projects currently receiving grants for detailed design work. One of them - the White Rose proposal for a 430 MW coal power plant with CCS next to Drax in Yorkshire looks likely to win a €300 million grant from the EU [10] but it is expected to cost £2 billion in total [11]. Biomass is also more expensive than onshore wind in subsidy (see table) plus it tends to be controversial in planning because of emissions from burning - at least wind turbines are clean in operation.

The government has announced CfD contracts for eight new renewable energy projects of which five are offshore wind (none are onshore wind farms). The total capacity for these five is 3.2 GW. Assuming 35% load factor, which is typical for offshore wind in this country, the extra 6p/kWh subsidy for these is worth £590 million/year.



[1] Tories would scrap wind farm subsidies. (Guardian) 24/April/2014
[2] UK Renewable Energy Roadmap Update 2012 (DECC)
[3] e-ROC track record
[4] Calculating Renewable Obligation Certificates (www.gov.uk)
[5] Implementing contracts for difference: Policy and Drafting Update (DECC) 23/April/2014
[6] N2EX (Nord Pool Spot)
[7] Investing in renewable technologies – CfD contract terms and strike prices (www.gov.uk) December 2013
[8] Strike price deal for Hinkley Point C (world nuclear news) Oct 2013
[9] Maintaining UK Energy Security (www.gov.uk)
[10] EU Green Light for UK Carbon Capture and Storage (BBC news) 17 April 2014
[11] Drax and the White Rose CCS project (www.gov.uk)
[12] Eight new renewable energy projects approved (BBC news) 23 April 2014

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