Sep 27 2010
The UK Energy Research Centre's latest research report, released today, explores the factors behind the cost escalations in electricity generation by offshore wind power and examines when these costs might decline and what needs to be done to make this happen. Offshore wind energy is expected to play a major role in contributing to the UK’s renewable energy targets, but the costs involved in offshore wind generation have escalated markedly, especially against early predictions.
Other emerging technologies have faced similar issues, with many going on to offer cost effective performance in the long run. The report shows how offshore wind can offer lessons for policymakers and technology analysts alike.
The UK faces significant challenges in meeting its renewable energy targets for 2020. Offshore wind is widely expected to make a major contribution. However, rising costs have been associated with its deployment. A report from the UK Energy Research Centre (UKERC) released today (27 September) explains why costs have risen significantly since the mid 2000s – and suggests ways in which these costs may be reduced in future.
UKERC’s report states that while the UK has big ambitions to maintain its position as a world-leading player in offshore wind, it is today importing 80% of equipment and services from abroad. There is therefore a substantial opportunity to bolster the UK’s manufacturing industry while building a low carbon economy.
According to the report’s chief author, Dr Robert Gross, head of Technology and Policy Assessment at UKERC, “The UK is not yet fully benefitting from being a world-leader in the field; in effect UK consumers are subsidising Danish and German wind energy companies. This report suggests that policies could do more both to bear down on costs and support a UK based industry.”
Ten years ago, when offshore wind technology was first deployed in UK waters, capital and generation costs were expected to fall substantially over time. Since then, producing electricity has become generally more expensive, but the rise in offshore wind costs has been particularly dramatic. Costs went up in part because of currency and commodity price movements but also because of supply chain shortages and bottlenecks. Planning delays also added to developers’ budgets and undermined supply chain confidence.
However, UKERC’s report points out that UK offshore wind is a technology that is still at an early stage of its development. Offshore wind currently only generates about as much power as a small conventional power station; the report emphasises that many developing technologies go through a period where costs rise before they begin to decrease.
Looking forward, the report finds grounds for optimism. The deployment of offshore wind is more advanced than any other emerging low carbon option, and there is evidence to suggest that a plateau in costs may now have been reached. The report cautions that costs are likely to come down slowly at first, but that material reductions are available if the right incentives are in place.
One means by which this might be achieved would be for the government to revise the system of premium payments currently delivered through the Renewables Obligation so that they send a long term signal that support levels will gradually reduce over time.
The report also suggests that policies could do more to support technological innovation and to bring more of the supply chain to the UK. This, said Dr Gross, would offer “benefits in terms of reduced exposure to currency movements as well as building a ‘green’ manufacturing economy.”
The report emphasises that if more of the industry is to locate here, the government needs to provide continued and targeted support for docks and other facilities to bring infrastructure and services to the standard where they can handle large components made in the UK.
Dr Gross concluded, “At the moment the UK’s support system offers a generous subsidy but may not do enough to build confidence in the companies making components, providing vessels or delivering support services. We could do more to support innovation and the smaller players lower in the supply chain.”