The findings, from new analysis led by researchers at Imperial College London, show the most recently approved offshore wind projects will most likely operate with negative subsidies – paying money back to the government.
Government support for renewable projects has previously led to accusations that clean energy is pushing up bills, but negative subsidies could help reduce household energy bills when the new farms start exporting power.
“Offshore wind power will soon be so cheap to produce that it will undercut fossil-fuelled power stations and may be the cheapest form of energy for the UK,” said lead researcher Dr Malte Jansen. “Energy subsidies used to push up energy bills, but within a few years cheap renewable energy will see them brought down for the first time. This is an astonishing development.”
The analysis of five European countries, including the UK, focused on a series of government auctions for offshore wind farms between February 2015 and September 2019. Companies that want to build wind farms bid in the ‘contracts for difference’ auctions by stating the price at which they will sell energy to the government. If a company's bid is higher than the wholesale electricity price once the wind farm is up and running, then the company receives a subsidy from the government to top up the price.
If the stated price is less than the wholesale price, then the company will pay the government back the difference. This payback is then passed on to consumers’ energy bills, reducing the amount that homes and businesses will pay for electricity.
The UK's September 2019 auction made the headlines as winning companies said they could build new offshore wind farms for around £40 per megawatt hour (MWh) of power. This was a new record, with bids 30% lower than just two years earlier.
The researchers analysed likely future electricity price trends and found that the contracted price is ‘very likely’ to be below the UK wholesale price. The team said that these wind farms are likely to be built and run with these costs, since financing is now accessible at lower costs for such projects, thanks to trust in the now mature technology.
Analysis found Germany and the Netherlands have seen some zero-subsidy offshore wind farms winning auctions, but the UK projects are likely to be the world’s first negative subsidy offshore wind farms.
Technology development was a major reason for falling costs, in particular the ability to build larger wind turbines further out at sea. Larger turbines can harness more wind energy and have access to more consistent wind speeds at higher altitudes.
The biggest wind turbines under construction have rotor diameters of 220m, twice the diameter of the London Eye. At the same time, wind farms are getting larger – the newest wind farm at Dogger Bank has the same installed capacity as Hinkley Point C, and is expected to produce about two-thirds as much electricity per year.
“The price of offshore wind power has plummeted in only a matter of a decade, surprising many in the field. The UK auctions in September 2019 gave prices that were around one-third lower than those of the last round in 2017, and two-thirds lower than we saw in 2015,” said Dr Iain Staffell from Imperial.
“This amazing progress has been made possible by new technology, economies of scale and efficient supply chains around the North Sea, but also by a decade of concerted policymaking designed to reduce the risk for investing in offshore wind, which has made financing these huge billion-pound projects much cheaper.
“These new wind farms set the stage for the rapid expansion needed to meet the government's target of producing 30% of the UK's energy needs from offshore wind by 2030. Offshore wind will be pivotal in helping the UK, and more broadly the world, to reach net-zero carbon emissions, with the added bonus of reducing consumers' energy bills.”
The success of UK offshore windfarms means the UK has considerable skills and expertise that can be exported around the world. The researchers said this means even more ambitious projects can now be attempted at offshore wind farms, such as producing hydrogen fuels using the wind power on site. Hydrogen fuels could be another key technology in helping decarbonise the UK, by replacing petrol used in transportation and natural gas used for heating homes.
The research was published in Nature Energy.
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