Offshore wind strike prices: Behind the headlines
The Global Warming Policy Foundation|Gordon Hughes, Capell Aris and John Constable|November 10, 2017
The new report prepared by economics professor Gordon Hughes, a former advisor to World Bank, Dr Capell Aris, a fellow of the IET, and Dr John Constable of the Global Warming Policy Forum, explains how the broad assumption that offshore wind prices are falling is not valid. Through a detailed statistical analysis of the data, covering 86 wind farms, the authors found that capital cost of offshore wind (£/MWh installed) is actually rising as a consequence of companies moving into deeper and deeper waters. The summary of the report is provided below. The full report can be downloaded from this page.
The new report prepared by economics professor Gordon Hughes, a former advisor to World Bank, Dr Capell Aris, a fellow of the IET, and Dr John Constable of the Global Warming Policy Forum, explains how the broad assumption that offshore wind prices are falling is not valid. Through a detailed statistical analysis of the data, covering 86 wind farms, the authors found that capital cost of offshore wind (£/MWh installed) is actually rising as a consequence of companies moving into deeper and deeper waters. The summary of the report is provided below. The full report can be downloaded from this page.
Summary
Because the successful bid prices (£57.50/MWh and £74.75/MWh, in 2012 prices) for offshore wind in the second round of competition for UK renewable electricity Feedin Tariffs with Contracts for Difference (FiTs CfDs) are very significantly lower than those awarded in 2015 (£114–£150/MWh in 2012 prices) it has been widely assumed that the underlying costs of offshore wind are falling, and that the CfD prices indicate a sudden paradigm shift for the technology. However, statistical analysis of the data available, covering 86 offshore wind farms, suggests that the capital cost of offshore wind (£/MW installed) is not in fact falling, since the extra costs of necessarily moving into deeper water are offsetting a real but modest rate of technological progress. The successful projects in the second round are almost certainly not viable at the low CfD prices offered, and these bids therefore must have other explanations. We infer that developers see the CfD as a low-cost, no-penalty option for future development, and that, because the contract is easily broken once the windfarm has been built, they regard the price as a minimum not a ceiling. Should the market price rise above the contracted price, because of rising fossil fuel costs or a carbon tax, they would cancel the CfD contract and take the higher price that would become available. On the other hand, if there is no significant probability of that elevated market price, these sites are very unlikely to be built. Contrary to media exaggerations, the low CfD prices are commercial speculation, not the dawn of a new age for offshore wind and renewables.
