Offshore wind power is now so cheap that farms are set to pay money back to consumers from mid-2020s, Imperial College London study predicts

UK offshore wind farms could be the first in the world to pay money back to consumers, following steep declines in the cost of wind power driven by falling technology costs and economies of scale.

That is the conclusion of a report published yesterday by Imperial College London which forecasts that the latest round of offshore wind farms to be built in the UK are likely to operate with ‘negative subsidy’.

In last September’s Contract for Difference (CfD) auction, wind developers said they could build new offshore farms for £40 per megawatt hour (MWh) of power, a record-breaking result that marked a 30 per cent drop from prices agreed for projects planned two years prior.

The Imperial College researchers analysed future electricity price trends and concluded the contracted price is “very likely” to be below the UK wholesale price from the mid-2020s onwards, when the farms are set to come online.

That means companies would have to pay the government the difference between their £40 strike price and the wholesale electricity price, with the savings then be passed on to businesses and households in the form of lower energy bills, according to the study.

Lead researcher Dr Malte Jansen said the findings marked an “astonishing development” for the booming offshore wind sector.

“Offshore wind power will soon be so cheap to produce that it will undercut fossil-fuelled power stations and may be the cheapest form of energy for the UK,” he said. “Energy subsidies used to push up energy bills, but within a few years cheap renewable energy will see them brought down for the first time.”

The trend marks a major reversal from previous deals struck at CfD auctions, which saw the government pay wind farm operators to produce wind power that was above UK wholesale prices, a format that has prompted criticism in some quarters that cthe push for renewable power was pushing up bills.

But that investment could soon offer a major payback, the study suggests. The researchers analysed offshore wind auctions in five different European countries and concluded the UK is set to be the first to boast ‘negative subsidy’ offshore wind farms.

The price of building offshore wind has nosedived in recent years due to new technologies, economies of scale, efficient supply chains and a decade of concerted policymaking designed to reduce investment risk, according to the researchers.

Iain Staffell from the Centre of Environmental Policy at Imperial, predicted that the latest round of offshore wind farms, with their ultra-low prices, would drive the growth of the industry over the decade as the UK works to meet its climate targets.

“These new wind farms set the stage for the rapid expansion needed to meet the government’s target of producing 30 per cent of the UK’s energy needs from offshore wind by 2030,” he said. “Offshore wind will be pivotal in helping the UK, and more broadly the world, to reach net-zero carbon emissions with the added bonus of reducing consumers’ energy bills.”

Source : Businessgreen.com