A string of offshore wind projects meant to power the UK are in jeopardy, after the global race to net zero sent costs soaring, casting doubt over the industry’s future as a cheap source of energy.
A surge in supply chain costs has pushed up the price of wind turbines, while increases in global interest rates have raised refinancing costs substantially.
The capital cost and resulting cost of electricity production, c/kWh, would significantly increase, due to: 1) increased inflation rates, 2) increased interest rates, 3) supply chain disruptions, which delay projects and increase costs, 4) increased energy prices, such as of oil, gas, coal, electricity, etc., 5) increased materials prices, such as of tungsten, cobalt, lithium, copper, manganese, etc., 6) increased labor rates.
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It has made several projects unviable just a year after they won government subsidy contracts – leading to fears from industry insiders that Britain’s future is in jeopardy as the “Saudi Arabia of wind”.
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The Inch Cape project, a 50/50 joint venture between Ireland’s ESB and China’s Red Rock Power to develop a project located 15 km off the east coast of Scotland, is understood to be at risk, with the Irish side refusing to proceed with a so-called final investment decision (FID) after balking at the economics of the project.
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One source said: “People won’t invest if it doesn’t give you a decent return on equity. And presently, it’s hard to see how it can.”
Projects developed by Danish company Ørsted and Swedish player Vattenfall are understood to be at risk, as the industry seeks more government subsidiesto ensure projects remain viable.
Senior executives have also described Net Zero Secretary Grant Shapps as a “remote” figure who is reluctant to engage with company bosses.
He had naively claimed, all was well, and many jobs would be created, and household costs would decrease, which all turned out to be a gross lie.
https://www.windtaskforce.org/profiles/blogs/the-200-billion-bill-f...
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The struggles faced by some of the biggest offshore wind developers raise fresh questions about whether the Government will achieve its target of 50GW of offshore wind by 2030, from current levels of around 14GW.
So-called contracts for difference (CfDs) are designed to guarantee companies that operate offshore wind projects fixed prices to sell electricity over a 15-year period. If the market price falls below the so-called strike price, the Government makes up the difference.
However, if the reverse is true, the companies must pay money back to the Government.
Last year’s CfD auction was the biggest to date and secured enough capacity to provide more than 10 million homes with clean power.
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However, it is understood that the £37.35 strike price secured by Inch Cape is currently “below the waterline” for ESB, meaning they are not satisfied with the level of returns on offer.
“It should be nearer £50 to £55,” a source said.
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It has been known for a long time, the prices agreed under CfDs by offshore wind are in no way viable.
It is worth noting that the £55/MWh figure quoted as a reasonable price is at 2012 prices, and works out at about £67/MWh at 2023 prices.
This certainly does not equate to the “cheapest” claims made by the wind lobby.
Furthermore, because CfD prices are inflation linked (the UK has an 8.5% inflation rate in 2023), these prices will likely be much greater than £80/MWh by the time the wind projects start producing electricity.
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The Norfolk Boreas offshore wind farm operated by Vattenfall is also understood to be at risk as costs mount.
A spokesman admitted that market conditions were “extremely challenging”, suggesting that a final investment decision was not forthcoming.
He warned the Government must reflect the realities of the market, suggesting Vattenfall was unwilling to proceed without more state subsidies.
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Catrin Jung, the company’s head of offshore wind, said: “Vattenfall has not yet taken FID on the Norfolk Boreas offshore wind farm.
“Market conditions are extremely challenging currently, with rising costs and a supply chain crunch as well as increasing costs of capital.
We are looking at the best way forward for all three projects which make up the 4.2GW Norfolk Offshore Zone and how we can work with the supply chain, including what opportunities there are for UK businesses.”
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Ørsted’s Hornsea 3 in the North Sea is also understood to be at risk, although a spokesman insisted that the company was “increasingly confident that we will be in a position to take a Final Investment Decision during 2023”.
The spokesman added: “The offshore wind sector has delivered huge growth in the UK over the last decade but it has arrived at an inflection point.
“It will require continued focus from stakeholders in Government and across industry to ensure offshore wind delivers on its potential to become the backbone of the UK’s energy system and bring further investment, provide low-cost electricity for consumers and help deliver our net zero ambition.”
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Insiders suggested that Red Rock Power, a subsidiary of China’s state-backed SDIC, is willing to proceed with Inch Cape at a loss in order to avoid the embarrassment of abandoning what would be its biggest investment in offshore wind in Europe.
However, it is understood that any decision to proceed would have to involve a project redesign.
A joint statement issued by ESB and Red Rock Power said the companies remained “strategically aligned and committed to the delivery of the Inch Cape Offshore Wind Farm project”.
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A Department for Energy Security and Net Zero spokesman insisted that Mr Shapps “regularly engages with the industry”.
The spokesman said: “Offshore wind is a vital part of our work to boost energy security and cut emissions.
“Our plans to power up Britain, combined with the annual auction process now in place, gives the industry more confidence to invest.
“We have already attracted £120 BILLION of private investment in renewables since 2010 and expect to attract a further £100 BILLION of investment which will support up to 480,000 jobs by 2030.
https://www.telegraph.co.uk/business/2023/06/24/net-zero-at-risk-of...
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With interest rates at higher levels than in 2012, and supply chain issues pushing up costs, the economics of offshore wind look highly unfavorable.
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Investors in these Round 4 auctions will need more than 80/MWh, for viability.
If they are not getting that from the government, they can sell at at least that price on the wholesale market.
And if these investors pull out, the 2030 wind power target is pie in the sky.
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FOOTNOTE
Yet, we see this silly comment by the Telegraph about a global race to net zero.
This is nonsense spouted by the government-subsidized mass media.
There is no "GLOBAL race to net zero"
Most of the world is quite happy to let UK/EU/US continue with their expensive, money-wasting wind/solar/battery madness, while the rest of the world has greater GDP growth grows and becomes more prosperous by using low-cost fossil fuels. Their motto is: “Screw the West”
APPENDIX
Huge UK/US Offshore Wind Turbine Build Outs are Pure Fantasies
UK government bureaucrats, etc., justify the build out of 26,000 MW of additional wind turbines by 2030, in less than 7 years, because: 1) the UK is the "Saudi Arabia of Wind", and 2) several hundred thousand new jobs will be created, and 3) household electric bills will be lower.
It took more than 23 years for the UK to expensively build 14,000 MW of offshore wind turbines by end 2022, that produce high-cost electricity, and caused greatly increased household electric bills.
How many steady, long-term jobs, with good benefits, were created due to wind turbines in the UK?
BTW, Biden wants to build 30,000 MW offshore wind turbines by 2030, a pure fantasy, that thus far has been killing dozens of whales, before even a single 850-ft-tall wind turbine has been erected!
A UK/US total of 56,000 MW in 7 years, or 8,000 MW/y
There exists no worldwide physical infrastructure to do that.
Plus, the UK 26,000 MW build-out would be at much higher turnkey cost per MW, and would produce much more expensive electricity, c/kWh, than the existing 14,000 MW of offshore wind turbines
How in hell do these demented bureaucrats get into these jobs?
Why do their words get magnified by the government-subsidized media mouthpieces?
Strike Prices
If Owners bid the strike price, and they get less, the government makes up the difference
If Owners bid the strike price, and they get more, they have to pay the government the difference.
"However, it is understood, the £37.35/ MWh strike price "secured" by Inch Cape is currently “below the waterline” for ESB, meaning they are not satisfied with the level of returns on offer.
“It should be nearer £50 to £55,” a source said.
That source is POORLY INFORMED
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It has been known for SEVERAL YEARS, the strike prices agreed under CfDs by offshore wind are in no way viable.
It is worth noting, the £55/MWh figure, quoted as a more reasonable price, is at 2012 prices, and works out to at least £67/MWh at 2023 prices, and likely much higher, because of high annual inflation
That certainly does not equate to the “cheapest” claims made by the wind lobby, and government bureaucrats, and trumpeted by the subversive lapdog mass media
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CfD prices are inflation linked (the UK has an 8.5% inflation rate in 2023, near the highest in Europe)
These INFLATION-ADJUSTED strike prices likely will be much greater than £80/MWh by the time the wind projects start producing electricity in a few years, and we are not even talking about the cost of:
1) the UK grid extension/reinforcement, and
2) a fleet of quick-reacting CCGT power plants to counteract the ups and downs of wind and solar output, on a less than minute-by-minute basis, 24/7/365, year after year
SOME USEFUL ARTICLES
BIDEN's GREEN ENERGY POLICY MAY “END IN TEARS"
https://www.windtaskforce.org/profiles/blogs/biden-s-green-energy-p...
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