COLUMN-UK shows offshore wind more costly than solar: Wynn

Thu Jun 27, 2013 11:49am EDT

Related Topics

(The author is a Reuters market analyst. The views expressed are his own.)

By Gerard Wynn

LONDON, June 27 (Reuters) - Britain's new support plans for renewable energy confirm that offshore wind is the most expensive green power technology, raising the question why the country is placing so much faith in it.

Offshore wind is even more expensive than solar power, which is not an energy technology where Britain has a competitive advantage, as a northern country whose climate is dominated by wet Atlantic weather.

The country has one of the best wind resources in Europe, which has led to a belief by some that it makes more sense to invest in offshore wind.

Such thinking is muddled because solar power is cheaper, even in Britain, and will probably remain so.

Britain announced support rates on Thursday for the second half of the decade which would provide offshore wind with a 20-25 percent premium to solar power.

The premium was even greater compared with other low-carbon technologies including onshore wind, biomass, waste-to-energy and hydropower.

That is before accounting for the astronomical grid connection cost for offshore wind - by sub-sea cable. This cost, about 10 times that for rival electricity generation technologies, is subsidised separately and is far from transparent.

The evidence for higher costs is a concern for Britain's plans, confirmed on Thursday, to install more offshore wind capacity than any other renewable power technology by 2020.

The government says it supports offshore wind because of its potential to help generate thousands of jobs, and to improve Britain's security of energy supply with low-carbon power.

NEW SCHEME

The plans were laid out in a shift from one form of renewable power subsidy to another.

Until now, the country has supported large-scale renewables (onshore and offshore wind, utility-scale solar and biomass) through a tradable certificate system.

Under that scheme, renewable power generators get a certain number of renewable obligation certificates (ROCs) per megawatt hour of power generation, plus the wholesale power price.

The value of the ROCs is set by an administratively determined purchase price (40.71 pounds for 2012/13) plus the amount of redistributed penalty payments for non-compliance, which adds roughly an extra 5-10 percent, making for a total ROC value at present of about 42 pounds.

That scheme has sometimes been described as too complicated, since there are various cogs in the support which make a calculation of exactly how much generators earn less transparent.

From 2014/2015 the Department of Energy and Climate Change (DECC) starts to switch to a new scheme which is closer to the feed-in tariff model credited with boosting renewable power in other European countries like Germany.

That "contract for difference" scheme approach will see generators get a subsidy equal to the difference between the wholesale power price (which they get as well) and a so-called strike price.

The strike price represents the total amount the renewable energy generator earns, which is therefore made more clear.

******************************************

Chart 1: (pages 13-14) goo.gl/puxJw

******************************************

WIND VS SOLAR

Under the new system of support, offshore wind will qualify for a strike price of 155 pounds per megawatt hour (MWh), from 2014/2015, while large-scale solar photovoltaics will get 125 pounds, and onshore wind 100 pounds.

The rate for offshore wind is higher than any other technology, with the exception of an experimental waste-to-energy process called pyrolysis, and marine wave and tidal projects.

Offshore wind will continue to earn the highest level of subsidy - with the exception of wave and tidal - through 2018/2019. (See Chart 1)

The difference with pyrolysis, wave and tidal power is that these are unproven and experimental, and will therefore see negligible capacity installed by 2020 - an aggregate of about 0.4 gigawatts, according to the DECC figures.

By contrast, offshore wind will see the most capacity installed of any renewable technology, at 8-16 GW.

The logic of selecting the most expensive technology for the largest deployment is unclear.

It may be that DECC expects the costs of offshore wind to plummet shortly thereafter, but that expectation is not demonstrated.

Another argument may be that offshore wind can be installed at scale; but there are utility-scale, low-carbon alternatives including solar and biomass, while nuclear power is probably cheaper after taking into account connection costs.

Perhaps the clinching argument is that offshore wind does not obstruct people's views - where nuclear and onshore wind are subject to planning objections in a crowded country.

CONNECTION COST

Grid connection is not usually included in consultancy estimates comparing the cost of electricity technologies.

That is probably because the grid connection is paid for through a different mechanism from electricity, which is sold directly by the power plant operator.

One study by Arup, however, has calculated the capital cost of grid connection, although only for low-carbon generation, and excluding offshore wind (whose grid connection is paid for through a unique scheme).

The capital cost of offshore wind grid connection is shown by data from the watchdog Ofgem.

Ofgem revealed last October that the expected, upfront capital cost for connecting four offshore wind farms averaged 689,000 pounds per megawatt (MW).

That compares with the Arup report's estimate for the grid connection cost of onshore wind at 76,200 pounds per MW. ("Review of the generation costs and deployment potential of renewable electricity technologies in the UK", Oct 2011)

It can be assumed that onshore wind grid connection costs are more expensive than fossil fuels, given these projects are often at more remote, windy sites.

Once these higher offshore wind grid connection costs are accounted for it becomes clear that the technology is not economic yet.

That does not mean that it will never work, only that it is not worth massive investment today.

In its efforts to cut carbon, Britain can follow Germany down the road of solar, or it can try to appease locals with pay-offs for onshore wind, or it can invest in nuclear, biomass or waste-to-energy.

(Reporting by Gerard Wynn; editing by Stephen Nisbet)

FILED UNDER: