The cost of energy from offshore wind has fallen by 32% since 2012 and is now below the joint UK Government and industry target of £100 per megawatt hour (MWh) four years ahead of schedule, according to a new report from the Offshore Renewable Energy Catapult.
The target, set in 2012, was expected to be met by 2020, but wind farms given final investment decision in 2015/16 are already achieving prices lower than this target. This rapid reduction is tracked in the third annual Cost Reduction Monitoring Framework (CRMF) report, delivered by the Offshore Renewable Energy (ORE) Catapult on behalf of the Offshore Wind Programme Board (OWPB).
The industry is now focusing on further cost reduction, growth and job creation, says the report.
UK energy minister, Jesse Norman, said: “The UK’s leadership in offshore wind clearly demonstrates that it is an attractive destination for renewable energy investment. This growing industry will be an important part of the government’s new industrial strategy, and will be underpinned by £730m of annual support for renewable energy over the course of this parliament.
“Thanks to the efforts of developers, the UK’s vigorous supply chain and support from government, renewables costs are continuing to fall. Offshore wind will continue to help the UK to meet its climate change commitments, as well as delivering jobs and growth across the country.”
Co-chair of the Offshore Wind Industry Council (OWIC), Benj Sykes, said: “Offshore wind is a big success story at the very heart of the UK’s industrial strategy. The industry is cutting costs much faster than predicted, while creating thousands of jobs and stimulating investment nationwide.
“But this is a story that is just beginning. We remain committed to delivering further significant cost reduction, while working in partnership with Government to put in place a Sector Deal and build a sustainable industry that will benefit the UK for decades to come. Our industry’s goal is to be cost competitive with other generation sources, and this new data shows that ambition is realistic and that we are well on the way to achieving it.”
Offshore wind costs have fallen sharply through the adoption of larger turbines, increased competition and lower cost of capital. Projects are reaching a Final Investment Decision (FID) in 2015/16 with an average Levelised Cost of Energy (LCOE) of £97/MWh, compared to £142/MWh in 2010/11.
The 2016 Cost Reduction Monitoring Framework uses both qualitative and quantitative data from projects reaching either FID or Works Completion during 2015/16. Since 2010, over £9.5bn has been invested in offshore wind in the UK, another £18bn will be invested in projects by 2021. Offshore wind already generates 5% of the UK’s electricity, and by 2021 this will double to 10%.
The report confirms figures from EY’s report, Spotlight on power and utility megaprojects — formulas for success, also published this week. The report found that the global offshore wind was beating conventional power projects when it comes to construction risk. EY analysis of 100 of the world’s largest power generation, transmission and distribution, and water projects found that on average conventional power projects run 35% over budget and behind schedule by two years, while for offshore wind the average was about 15% over budget with delays of less than six months. Many offshore wind projects now have construction contingencies of less than 10%, reflecting the reduction in construction risk. This has also meant increased returns for investors in the sector – before 2013, average returns from investing in equity in wind projects were -5.7%, while in 2013-2016 returns increased to 17.5%. This was accompanied in a reduction in volatility of investor returns from 27% to 20%.
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