There is no shortage of developers who want to build offshore wind. But there are questions over whether the current subsidy regime is the best way to get them to deliver the next 30GW.
First, the system is expensive. Aurora Energy Research estimates that, at a guaranteed price of £40 MwH, it would cost about £2.6bn per year to deliver the extra capacity – almost five times the £557m budgeted in 2019.
Second, the auctions are held every two years, likely too slow for the increase required. SSE says the target will be “impossible” to achieve without annual auctions from 2025.
Third, there is an unhelpful paradox at work. Renewables push down the wholesale price of electricity, increasing the difference against the guaranteed price – for which bill-payers are on the hook – and lowering returns for developers exposed to wholesale prices.
Calls are growing for the system to be reformed, therefore, to make it more attractive for investors in the long term and lessen costs for bill-payers.
“The current wholesale market risks providing a reducing incentive to investment at the level required to meet the net zero target,” warns Tom Edwards, at Cornwall Insight, the energy market analysts. He warns this will “increasingly cause headaches for investors, developers, and policymakers.”
Detaching subsidies from the wholesale price is one reform being proposed. The government could also look to other incentives, such as tying wind farms to producing hydrogen – which is likely to be more widely used, in heating for example.
But reform takes time and space to think, which are in very short supply when the aim is to get there within nine years.
Other changes are also needed. Planting such a large number of wind turbines in the sea will need agreement from planning, environmental and aviation authorities at far greater pace than happens now.
The £160m that was also announced yesterday to upgrade ports and infrastructure in areas such as Teesside and Humber will be helpful. But the network of power cables connecting wind turbines on the sea floor and to the mainland also needs improving.
National Grid also needs to ensure the lights stay on even when there are fewer gas and coal power plants, which help stabilise the grid.
“Getting to 40GW is a fantastic target we should strive for and there are many potential developers,” says Steve Jennings, head of energy for PWC in the UK.
“However, wind power can’t exist in isolation. We need a whole energy system approach to bring it to consumers at the lowest possible cost and provide certainty to investors on returns.”
If all that sounds tough, its worth remembering that the 40GW by 2030 target is far from the end of the story when it comes to offshore wind.
The Committee on Climate Change, which advises the Government, believes that 75GW could be needed by 2050 to hit Net Zero targets.
At least Boris Johnson’s government won’t have to deal with that.