Impact of Norfolk Boreas decision on UK’s net-zero ambitions
This article from Claire Mack, Chief Executive of Scottish Renewables, first featured in the Sunday Times yesterday (July 30, 2023).
One offshore wind development down - but how many need to go before the UK Government wakes up to the increased cost pressures and economic challenges placing our net-zero ambitions in jeopardy.
It’s a universally recognised fact that wind power is the cheapest form of energy available to the UK Government but, having seen costs rise by 40%, the Swedish developer of a major offshore wind farm in the UK, Norfolk Boreas, has said it is no longer commercially viable and is out of development. Norfolk Boreas is just one of dozens of UK renewable energy projects faced with significant, unforeseeable supply chain disruption and cost pressures, with increases in capital expenditure costs far exceeding headline rates of inflation.
Of course, developers will always consider price fluctuations when preparing forecasts for their projects. But 40% is way beyond the wildest contingencies built into any investment model and the Norfolk Boreas announcement is a major concern for the future of offshore wind in this country.
It is, surprisingly, particularly devastating for Scotland. It costs more to build offshore wind farms north of the Border than further south, but without Scotland the UK Government cannot reach its net-zero targets.
The UK Government has an ambition to deploy up to 50GW of offshore wind by 2030, of which 20GW is likely to be developed in Scotland, up from 13.7GW today.
We’ve always known higher electricity transmission charges make Scottish projects less competitive than those in England and Wales. That’s why there are grave concerns that we are on the verge of seeing a domino effect of developers across Scotland slamming the brakes on investment decisions. That’s a domino effect which would have drastic consequences for the future of this country.
An eyewatering amount of potential is at risk of being lost, with the opportunity to create over 100,000 UK jobs on the line and tens of billions of pounds worth of investment now up in the air.
The frustrating thing is, we shouldn’t be in this position.
The UK is blessed, particularly in Scotland, with the natural resources to meet all our electricity needs and ensure energy security is never again an issue for this country. Scotland’s renewable energy potential makes North Sea oil and gas look like a flash in the pan.
And it’s no pipedream: Scotland is ready to deliver a homegrown energy supply which can also be exported to the rest of the UK, but is being held up by government and regulatory policy which is not only slowing down the deployment of offshore wind but putting Scotland’s offshore wind potential at serious risk.
First of all, the UK electricity network is not fit for purpose.
We are still using a charging model with its roots in the 1990s, the Transmission Network Use of Service Charge (TNUoS), to set out how energy operators pay to use and maintain the electricity network.
More than 30 years on, despite the renewable energy industry sitting at the heart of the UK economy and playing a key role in UK energy security, consumer bill reduction and net-zero, we are being hampered by this outdated and historically rooted system.
Under TNUoS, an average 1GW Scottish offshore wind project would pay £38 million a year to use the electricity network, while an identical wind farm in the congested seas off England’s south coast would receive a £7 million payment for the same service.
If projects like Norfolk Boreas are being seen as unviable even with this biased financial environment working in their favour then Scottish projects are in an unfavourable position and are increasingly vulnerable.
Renewable energy projects are awarded contracts to sell their power through the UK Government’s Contracts for Difference competitive auction process. It’s designed to push prices as low as they can go, and has been incredibly successful at doing that, but means there is no financial headroom to absorb rises in commodity prices and inflation. Therefore it is alarming that ministers have failed to take account of the cost pressures facing developers and have not increased the budget to accommodate these in the auction process.
In fact, the budget for the next auction round, to be held in early September, falls far short of what will be required to maximise the amount of cheap, clean renewable energy delivered by projects involved at this stage.
If this isn’t addressed urgently consumers will face higher bills for longer, and each developer's ability to invest in local supply chains will be undermined.
Our industry is already under serious threat from the USA’s Inflation Reduction Act and the EU’S Fit for 55 legislation so it’s vital that we send a clear signal to restore investor confidence by increasing the auction budget as soon as possible.
All is not lost, and there is still time for the UK Government to get its head out of the sand and deliver on its net-zero promises by putting us back on the road to becoming a net-zero nation powered by cheap, clean, home-grown renewable energy.
But it needs to move fast.
Claire Mack, Chief Executive, Scottish Renewables