Saturday, 18 January 2014

Easy ways to make offshore wind appear a lot cheaper which are being ignored by the Government

The Government are busy saying that offshore wind can only be implemented in the future if its costs come down - yet some very simple ways of reducing the headline prices that consumers will have to pay can be implemented, but are being ignored, by the Government.

A very simple way of reducing their headline costs is simply to extend the length of the power purchase agreement from 15 years to at least 20 years (under the Renewables Obligation the agreements last for 20 years, so why not under Electricity Market reform?). That would reduce the headline price needed for a given scheme by around 8 per cent. In addition to this the Government could also offer loan guarantees to offshore windfarms similar to that offered for Hinkley C. That would reduce costs by around a further 15 per cent.

Currently the loan guarantees on offer for low carbon energy sources seem to be focused on Hinkley C (for 65 per cent of the investment) and some biomass power plant, led by what would still be a 50 per cent coal fired Drax power station. Only one offshore project, Neart Na Gaoithe, off Fife in Scotland, has been put on the 'prequalified' list for loan guarantees for the purposes of building the turbines and bases themselves, and this windfarm has been spectacularly ignored by the Government when it issued its list of projects that will receive 'investment contracts'. See

Of course a more imaginative scheme for offshore wind might give them 35 year contracts (the same length offered for Hinkley C). This would reduce the headline price for offshore wind even further. Indeed, state-backed companies such as DONG (Denmark) could play a similar role performed by the putative (state owned) French and Chinese backers of Hinkley C and take a longer view on investment returns than that which appeals to privately owned companies. Certainly, in the case of offshore wind there is plenty of scope for long term thinking since after 15 or 20 years the blades and perhaps other parts can be replaced with what will be by then more updated models, whilst utilising the base infrastructure that will have been installed and paid for (a 'sunk' investment in more ways than one).

The Government has already indicated that future proposed nuclear projects will be considered for loan guarantees. Indeed we know that they cannot be built without them. So why is it not practice to extend loan guarantees to offshore wind projects as a matter of course? Or is it just that the Government prefers to see offshore wind look, in headline terms as though it will cost the consumer more than nuclear power?

You can see the list of the Government's 'pre-qualified' projects at:

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