UK Offshore Wind Farm Costs Fall Sharply

The cost of generating electricity from offshore wind farms fell sharply in the UK to below the price the next nuclear reactors will charge, making the form of clean energy one of the cheapest ways to supply the grid.

In a government auction that handed out power-purchase contracts worth $232 million a year, all of the bids to build offshore wind farms and other renewable technologies were below the $122 per megawatt-hour price awarded to the controversial Hinkley Point atomic plant due to be complete in the next decade, Bloomberg reported.

Winners included the Danish utility Dong Energy A/S, with an offer of $76 per megawatt-hour for power from its Hornsea 2 offshore wind farm, and EDP Renovaveis SA and Engie SA, which will receive the same for their Moray Fifth East project.

Environmental and renewable-energy groups said the 50% plunge in the cost of power from turbines sited in the sea indicates that clean-energy technologies are quickly rivaling traditional forms of generation without heavy subsidies.

“This is a breakthrough moment for offshore wind,” Matthew Wright, managing director for Dong in the UK, said in a statement. “It will also deliver high quality jobs.”

This was the UK’s second contracts-for-difference auction, where would-be developers compete for projects by bidding the price it would be willing to accept for its electricity. The contest was for “less-established technologies” such as offshore wind, tidal and anaerobic digestion.  The power-purchase agreements are fixed for 15 years. If the wholesale rate is lower than the set price, the government pays the developer the difference. If it is higher, the company reimburses the state. Wholesale power prices in the UK have averaged about $62 per megawatt-hour over the past year.

“We have placed clean growth at the heart of the industrial strategy to unlock opportunities across the country, while cutting carbon emissions,” said Richard Harrington, minister for energy and industry.

“The offshore wind sector alone will invest $23 billion in the UK up to 2021 and thousands of new jobs in British businesses will be created by the projects announced today.”

The offshore wind industry has seen its costs plunge as the capacity of its turbines doubled since 2007. It’s set to double again by 2020, driving down costs further, according to research by the environmental group Greenpeace.