Posted on September 4, 2024
The successful outcome of the government auction for renewable energy projects may bolster a wind industry battered by rising costs.
The British government on Tuesday awarded price support contracts for a series of offshore wind farms as part of a wider package for renewable energy, a reversal from a disappointing auction last year in which there were no takers for offshore wind projects.
“The government has shown it takes renewable energy seriously,” Duncan Clark, the head of Britain and Ireland for the Danish wind developer Orsted, which received support for two projects in the auction, said in a statement.
Overall the government awarded support for 131 renewable energy projects including onshore wind as well as solar and tidal power. RenewableUK, an industry group, estimates that the installations, if completed, could attract 14 billion pounds, or about $18 billion, in investment and power nearly 11 million homes.
The government of Prime Minister Keir Starmer is betting on offshore wind as “the backbone of the clean energy mission” to shift from oil and gas to renewable energy sources in a matter of years.
The governing Labour Party realized that if it wanted to retain Britain’s leading position in offshore wind installation, it needed to substantially increase price supports to help developers tackle the estimated 40 percent increase in the costs of building these projects in recent years. Offshore wind is attractive in Britain because of abundant wind and large areas of shallow seabed off the coasts, especially in the North Sea. Investors are also attracted to the profits from these projects, which can cost billions of dollars.
Stephen Bull, chief executive of Vargronn, which received support for a floating offshore wind farm off Scotland called Green Volt, said in an interview that the auction might not have reversed the impact of last year’s failure, but that the results put Britain “on the right track.”
In Britain, developers of renewable energy projects are guaranteed that they will receive a capped price for their electricity, providing security for investors.
More than one successful event will be required to revive an industry that has suffered a series of setbacks both in Britain and globally. Several offshore projects have stalled or been canceled in the United States because of higher costs.
During the summer, building was halted on Vineyard Wind near the island of Nantucket, Mass., which was likely to be the first large offshore wind farm off the United States, after a giant wind turbine blade shattered and scattered debris onto New England beaches.
A wind farm under construction in British waters called Dogger Bank has also encountered setbacks. Two blades, which are each more than 300 feet long and weigh tens of tons, have recently been damaged in accidents. All of the blades in these incidents were supplied by GE Vernova.
Analysts called the auction results on Tuesday a success, but Britain will need to step up the pace of building projects to achieve its goal of quadrupling offshore wind capacity by 2030. It may prove even more challenging to build the power lines that will carry the electricity generated by these facilities to population centers.
After the failed auction last year, the government substantially increased the level of the price guarantees it was willing to allow. In the latest auction, the floor prices for offshore wind range up to an estimated £82, or $108, per megawatt-hour, an electricity metric. Over the last year, power prices in Britain have averaged about £70 per megawatt-hour, according to Drax Electric Insights, a website that tracks such metrics.
The government also allowed developers like Orsted and the Spanish utility Iberdrola to bid for new price guarantee levels for projects that had already received such support before inflation surged. The new awards were up to 58 percent higher than those originally awarded in 2022, estimates Deepa Venkateswaran, an analyst at Bernstein, a research firm.
