UK Gov has taken its 'eye off the ball' on offshore wind

But, said Morag Watson, policy director of Scottish Renewables, the real problem is that the “UK Government has taken its eye off the ball.”

“The UK Government is not giving it the attention or status it needs,” she said. “We have this great pipeline of projects that will deliver jobs and economic opportunities and clean, affordable energy to the UK, but on the downside, the government just does not seem to be giving it priority.”

The recent announcement from energy giant Vattenfall that it was stopping “the current development track” of its offshore wind power project Norfolk Boreas in the UK, has triggered ripples of concern about the viability of Scotland’s hoped-for offshore wind boom.

Vattenfall blamed the shift on “challenging market conditions” and "cost increases up to 40%t", noting that "so far, financial frameworks have not adapted to reflect the current market conditions.”

“To see Boreas being put on hold,” Ms Watson said, “when it was a major development, is deeply concerning.”

However, she noted that new offshore wind developments are not only impacted by rising costs, but also the prices that companies were tied into in the last, and fourth, round of contracts for difference.

The contracts for difference (CfD) scheme is designed to "deliver low carbon deployment at low cost to consumers" and give investors the confidence they need.

When wholesale electricity prices are higher than the price agreed in the CfD, generators have to pay back the difference. This is expected, over time, to translate to lower bills for consumers.

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Particularly affected, said Ms Watson, were those projects that came through in that round, commenced in 2021 and  concluded in July 2022 - and whose prices were celebrated for being particularly low.

Ms Watson said: “Last year we had a big economic shift triggered by Russia’s illegal invasion of Ukraine. We have seen commodity prices going up. We know that project prices are going up - and there was a deep concern that the projects that had come through auction round four, simply weren’t deliverable in the economic situation we now find ourselves in.”

CfD auction round five is already in process and the parameters are a cause, Ms Watson said, "for concern". “If we repeat the same issues in auction round 5, that is really going to slow down our progress, both in terms of meeting our targets for climate change, but also in terms of energy security, getting ourselves away from dependency on international commodity markets over which we have no control.”

She added: “There is still an opportunity for the government to rethink how they are doing this, particularly in the light of the news about Boreas.”

In the past, the aim of contracts for difference has been to get the lowest possible price for the consumer.

However, Ms Watson said, that needs to change. “What we’re asking the UK Government to look, now, at what is the sustainable price that we can bring forward these projects at.”

She stressed that offshore wind would still be offering low-cost energy.  “The thing we all need to bear in mind is that even before the situation in Ukraine, and gas prices went as high as they did, onshore and offshore wind was still bringing in electricity at about half the price of that produced by gas. So even if we see the prices coming through the contracts for difference mechanism going up slightly, we are still the cheapest form of energy by a long shot.”

The biggest factor behind the increased build costs is the price of steel, which is used both in foundations and turbines -  70% of a turbine being steel.

“In the period between auction round four and now,” said Ms Watson, "steel prices have gone up, the price of turbines and all those steel components go up, and that changes the economics of your model.”

Energy prices are also, she said, key. “During the build period of a development, at every stage of the supply chain energy use is involved in some way, in the steel manufacture, in the transportation of parts, in all of these things, so those energy prices are particularly driven by the cost of gas becoming incredibly important.”

There are also, she observed, other policy changes that would help protect and foster the offshore wind boom. For instance, Scottish Renewables are calling for the UK Government to help secure Scotland’s offshore wind future by altering the Transmission Network Use Of System charge.

It's this charge on distance from supplier to consumer, which is used to fund grid construction, that sees Scotland’s offshore wind pay a disproportionate contribution to the transmission simply because of how far the projects are from energy users.

Seagreen offshore wind farm in the North Sea. Image: SSE

For Scotland’s offshore wind projects,  grid charges are currently enormous – around “£1 million a year” for a 1GW Scotwind project in the northern North Sea.

Ms Watson said: “The rules were designed thirty years ago for a fossil-fuel-based system. What they did was to put in what they called a locational charge and that essentially meant the further you were from the population the more you paid, because the more transmission line you had to build to get the electricity from where you made it to where it was being used.

"We have one part of our energy system that is about energy security and getting us off gas and fossil fuels so we can lower our energy bills and have energy security and then we have another part of the system that was designed around fossil fuels that says don’t build this stuff.”

Scottish Renewables would also like to see an increase in how fast consent is given to the projects. “What we need to see," said Ms Watson, "is a continual build-out of offshore wind. The UK government has upped their ambition for offshore wind and through ScotWind we have seen an enhanced ambition, but what we’re not seeing is the pace of consenting and the capacity of all those bodies that need to be involved in consenting going up accordingly.”

Particularly of concern is the slow progress in developing North Sea grid.

“There is," she said, "no equivalent of the national grid in the North Sea because there never needed to be in the past. It needs to be built – and in order to connect all these offshore wind projects we really really need to start building by the middle of next year otherwise the grid connections will not be there to connect the projects. And then that is a real concern for project liability because if you invest in building it but you can’t get the electricity you are generating into the grid, that’s a major problem.”

Offshore wind is seen as key to Scotland's future on numerous levels. According to a recent analysis by the Offshore Wind Energy Council, offshore wind, if optimised could deliver 100,000 jobs to the UK.

"The industry," it said, "is set to employ 104,401 people by 2030 to meet current targets – an increase of 6,936 since last year’s forecast."

“This," said Ms Watson, "is one of the biggest infrastructure investment opportunities the UK has ever seen. But it isn't the case that it is looking for a huge amount of subsidy from the public purse or anything. This is all done through private finance. But what stands in the way of realising all this is government decision-making."