Renewable energy supporters have declared another significant milestone in the industry’s history as the results of a government contract auction showed companies are willing to build projects such as offshore wind and bioenergy at prices that suggest they will not require any taxpayer support.
The Department for Business, Energy and Industrial Strategy on Friday released the results of the latest auction of 15-year government contracts to encourage more renewable power generation. Developers bid a guaranteed price per unit of electricity at which they would be willing to proceed with their project.
The competition was aimed specifically at technologies such as offshore wind and advanced conversion, which recovers energy from waste. It was also open to onshore wind projects on remote islands such as Orkney.
Six offshore wind projects proposed by companies, including Norway’s Equinor and SSE of the UK, secured contracts via the auction, some of which have agreed to build for guaranteed prices as low as £39.65 per megawatt hour. This is 30 per cent less than a comparable auction in 2017 and below forecast market prices, meaning that on paper there could be no, or at least a minimal, cost to taxpayers.
The government has forecast market prices of between £48.13/MWh and £51.23/MWh depending on the delivery date of projects.
Ministers claimed on Friday that “for the first time renewables are expected to come online below market prices and without additional subsidy on bills, meaning a better deal for consumers”, although definitions of “subsidy free” are subject to rigorous debate in the energy industry as forecast market prices could turn out to be wrong.
John Sauven, executive director of Greenpeace UK, said: “These plunging costs are a massive tribute to the skills and commitment of the UK’s globally leading offshore wind industry. What’s now abundantly clear is that the more offshore wind we build, the cheaper our bills will become.”
The forecast prices are well below the £92.50 per megawatt hour controversially secured by the French and Chinese backers of the new Hinkley Point C nuclear power plant under construction in Somerset. They are likely to reignite debate around the intermittency of renewables, which only generate when the sun shines or the wind blows.
Supporters of the nuclear industry argue prices are not comparable as reactors can provide electricity year-round whereas other technologies, such as batteries or small gas plants that can be rapidly fired up, are required to fill in the gaps when renewables aren’t generating.
Under the terms of the latest auction — known as “contracts for difference” — developers are paid the difference between the guaranteed price they have agreed with government and a “reference price” which is based on an average of market prices of electricity. If market prices rise above the guaranteed price, generators pay the surplus back to the government.
In total, 12 renewable energy projects won contracts which will add 6 gigawatts of electricity to the grid by 2025, the government said. This would be enough to power over 7m homes when weather conditions were favourable. Among the winning projects were four remote island wind schemes and two bioenergy initiatives.
Announcing the results Boris Johnson, the prime minister, said: “The UK is leading the way in the fight against climate change, and it’s great news that millions more homes will be powered by clean energy at record low prices.”
The offshore wind industry has made great advances since the first turbines were installed in Danish waters in 1991, allowing developers to advance projects at much lower prices.
Turbines are now much taller and more powerful, meaning fewer are needed to generate the same amount of electricity. Developers are building wind farms on much bigger scales, while supply chains have also developed rapidly and turbines are installed much faster on seabeds around the country than in the early days of the industry.
The sector has also attracted investors such as pension and infrastructure funds who are willing to accept lower returns for lower risks, paving the way for a sharp fall in costs of capital for developers.