Multi-billion pound UK offshore wind investment opportunity at risk from policy instability

Thursday 13 November 2014
William Andrews Tipper William Andrews TipperHead of natural environment0207 630 4528wandrewstipper@green-alliance.org.uk
Instability caused by short term energy policy challenges is causing UK offshore wind projects to be shelved. But new research by think tank Green Alliance [1] has concluded that decisive action within the first two years of the next government could reverse this trend whilst helping unlock industrial growth. Longer term policy frameworks could attract a potential £1.8 billion investment per year into the UK supply chain. 

The report, UK offshore wind in the 2020s: Creating the conditions for cost effective decarbonisation, concludes that:

- The UK will need a minimum of 25GW of offshore wind by 2030, of which 10GW is projected to be in operation by 2020. [2] Currently, 13GW of additional offshore wind projects are at an advanced stage of development, and a further 20GW have entered development. 

- Policy, regulation and funding challenges mean the pipeline is shrinking. 8.2GW of offshore wind projects were withdrawn in the 12 months to June 2014, with other projects since shelved. New projects must compete for government funding which will only be sufficient to deploy an additional 1.2GW in the five years up to 2020.

- However greater policy stability could result in capital investment worth in the region of £1.8 billion a year between 2015-30 into the UK offshore wind supply chain, [3] over three quarters of which is made up of small and medium sized UK companies. 

The research has identified five actions the next government should take to realise the industrial and decarbonisation potential of offshore wind:

1. Set a 2030 carbon intensity target for the electricity sector of 50gCO2/kWh.

2. Confirm the scale of funding available to support delivery of low carbon energy infrastructure during the 2020s under the Levy Control Framework.

3. Provide more certainty for low carbon generators by confirming the timing of funding allocation rounds for the rest of this decade. 

4. Stabilise the supply chain by committing to minimum levels of offshore wind deployment in the 2020s (dependent on generators meeting cost targets).

5. Draw on international experience to derisk UK offshore wind development and ensure a robust pipeline during the 2020s.

Commenting on the research, Matthew Spencer, director of Green Alliance said:

“The 2020s loom large if you are investing hundreds of millions of pounds into energy infrastructure. A longer term approach to low carbon energy policy will give industry the confidence and stability it needs. If the next government can give indications about likely market size into the next decade then we will be in a much stronger position to expand the offshore wind supply chain and boost UK manufacturing.”

Brent Cheshire, Managing Director of DONG Energy UK said:

"The Green Alliance report is a welcome and timely reminder that we need to think beyond the end of the decade and how offshore wind can continue to be part of the UK's decarbonisation objectives.  DONG Energy believes that by exploiting the UK's excellent wind resource and reducing the cost of electricity from offshore wind, there is a great opportunity to deliver supply chain and energy security benefits to the UK economy."

Aram Wood, Vice President Strategy – Windpower and Technologies at Statkraft, said:

“Offshore wind can play a big role in providing the UK with low carbon, secure power in the 2020s and beyond. If the next round of offshore projects is to be ready to construct early in the next decade, tens of millions of pounds of investment will be needed. That won’t happen unless the next government provides clear policy signals very quickly. The current Government has made a good start with the Electricity Market Reforms. The Contracts for Difference regime is good news for investment. However, the framework for allocating funds does not look far enough into the future. Nor does it provide the certainty needed to develop offshore wind projects. If this government, or its successor, can get this right, offshore wind can play its full part in supporting the transition to a low carbon economy at least cost, and in creating UK jobs and prosperity."


Ends

Notes to editors

[1] Green Alliance is a charity and environmental think tank focused on ambitious leadership for the environment. www.green-alliance.org.uk 

[2] The Committee on Climate Change’s energy mix projections for cost-effective 2030 electricity decarbonisation indicate that at least 25GW of offshore wind will be needed.

[3] This would be possible with stable deployment of 1.33GW per year and 50 per cent UK content in wind farms, in line with the government’s aspiration.