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Study shows the most competitive onshore wind projects could proceed without subsidy

Nick Sharpe

Media Manager

Posted on 13/04/2017 by Nick Sharpe

A study has found that the UK Government could deliver 1GW of new onshore wind capacity – enough to meet the equivalent annual demand of 600,000 homes – at no additional cost to consumers over and above the long-term wholesale price of power.

However, delivery is dependent on mature renewables being able to bid in auctions for long-term contracts for clean electricity, such as those offered to offshore wind and the new nuclear facility at Hinkley Point.

The report, produced by industry experts Baringa Partners, is based on the latest evidence on the costs of onshore wind and other established renewable technologies such as large-scale solar power.

It concludes that an auction would result in further reductions in the cost of onshore wind power, which the UK Government already believes to be on track to be the lowest cost form of electricity generation in the UK. 

The auction is expected to clear at £49.40 per MWh, meaning that successful onshore wind projects would receive limited ‘top-up’ payments over and above the wholesale price of power in the first years of their operation, but would then pay back a greater amount to the public purse over the remainder of their contract as the wholesale power price increases. 

The capacity delivered through the auction – most of which is expected be in Scotland - would result in more than £1 billion of private sector investment in clean energy generation across the country, and would displace some 8 million tonnes of CO2 during their lifetime.

Niall Stuart, Chief Executive of industry body Scottish Renewables, which commissioned the report, said: “The UK Government has already published research showing that onshore wind is on track to be the cheapest form of electricity generation in the UK, and this report shows that the industry is continuing to drive down costs.

“The study’s findings reinforce that onshore wind can make a significant contribution to ministers’ ambitions for the Industrial Strategy.

“At these kinds of prices, the technology can continue to play a key role in cutting carbon emissions whilst keeping bills down for businesses and households – an important priority for Government.  It can also secure inward investment and jobs across the country and drive the renewal of our ageing energy infrastructure.

“However, the report also shows that we will only deliver those benefits at scale if onshore wind and other mature renewables are able to bid again for long-term contracts for clean electricity generation.”

Established renewable energy technologies – including onshore wind and solar – have been locked out of the Contracts for Difference (CfD) framework since the 2015 Conservative manifesto pledge to ‘end any new public subsidy’ to onshore wind farms, with the current auction process only open to less established renewable technologies such as offshore wind.

Mr Stuart added: “Crucially this is the first analysis of its kind that shows investment in the most competitive onshore wind projects can now be delivered in a way that is in line with the Conservative manifesto pledge to end new subsidies for the sector.

“Projects would be expected to receive limited ‘top-up’ payments in the first years of their operation, but would then pay those back – and more – in the latter years of their contract, meaning an overall saving for consumers.”

The report highlights the falling costs of onshore wind internationally as a result of decreasing turbine prices and the use of auctions to ensure competition.

Commenting on the report, Peter Sherry, Senior Manager at Baringa Partners and lead author of the report, said: “The dramatic reductions observed globally in both renewable and storage technology costs represent a game-changer for the sector and can help move us a step closer to solving the ‘trilemma’ of how to deliver reliable and clean energy at an affordable cost for consumers.

“As an island system with exceptional onshore wind resources, Great Britain is well-placed to play a leading role in this transition.”

“Even with no direct subsidy required, the government can still play an important role in offering a low-risk route to market for new onshore wind via the CfD mechanism.”
 

Notes:

  1. The report by Baringa Partners, An analysis of the potential outcome of a further ‘Pot 1’ CfD auction in GB, is available on Scottish Renewables’ website.
  2. The CfD mechanism stabilises revenue and cost, thereby reducing risk and lowering the cost of capital, which in turn minimises the cost of energy.
  3. The Low Carbon Contracts Company (LCCC) would need to top up the revenues of the 1GW of capacity cleared in the auction by around £8 million per annum for the first five years. Thereafter, the generator pays back on average £7 million each year for the remainder of the 15-year contract.
  4. BEIS has stated that the costs of onshore wind projects delivered in 2020 would be cheaper than alternatives in Electricity Generation Costs, published in November 2016.  See p24 for comparisons.