Winds of change blowing through UK energy as world’s biggest offshore wind …

July 6, 2013 by  
Filed under Wind Energy Tips

The jury may be out on the cost to wildlife, but there’s no denying offshore
wind has a big cost for energy billpayers. It currently costs almost three
times the market price of power of about £50 per megawatt hour (MWh); if
energy policy was decided by price alone, London Array would not have been

But ministers have backed a major expansion of offshore wind to help Britain
meet its green targets. From 3.3GW of installed capacity now, they want to
see as much as 16GW by 2020.

For every MWh of electricity London Array generates over the next 20 years, it
will get subsidies, currently worth about £90, on top of the power price –
all paid for by consumers.

The Prime Minister hailed the opening of London Array as “a great day for
Britain and a big win for renewable energy”.

Dr John Constable, director of Renewable Energy Foundation, disagrees. “There
is little to celebrate here,” he says. The REF, which despite its name is a
stern critic of green costs, calculates that London Array’s owners could be
in line for £190m a year in subsidies. “This is neither good value for the
consumer nor an economically compelling climate policy,” he says.

London Array’s owners won’t disclose their likely profits, although Bader Al
Lamki, director of Masdar Clean Energy, does say that the investment will
pay for itself in “less than 10 years”.

Sykes says the rates of return are “not stellar” but “acceptable”. “We
wouldn’t do it if it wasn’t good business,” he says, but it is “not a
lucrative business” like oil.

Having spent 21 years developing oil projects for Shell and Hess (before
taking a “scary pay cut” to move to an industry his kids would be “proud
of”), he should know.

“The margins are so slim compared to oil and gas that a couple of slips and
you’re massively in the red on the project,” he says. “Our job is to make it
an investable industry without being unfair to consumer.”

High subsidies refect the fact offshore wind is a “young” technology compared
with, say, nuclear.

“Our aim is to bring our cost down to parity with other technologies as fast
and efficiently as possible,” he says. “Building the world’s biggest
offshore wind farm is a very important step in taking us to the scale that
will enable us to drive the cost down.”

Ministers want costs reduced to £100/MWh by 2020. An industrial strategy on
the issue is expected soon.

This is also intended to help ensure that a bigger share of the costs of
future wind farms – as much as 50pc – is spent in the UK. For London Array,
it was just 10pc; most of the parts were shipped in from elsewhere in

“The UK needs to step up to the plate and deliver a competitive indigenous
supply chain,” Sykes says. “We have to find the right balance between
driving the cost of energy down and at same time making sure the UK gets
benefits of this scaling up of offshore wind.”

To the scepticisim of many, DONG believes it can undercut the 2020 target and
reach £85/MWh. Part of the answer is scale: bigger turbines and bigger wind

The tips of London Array’s turbines reach 482ft above the sea, making the
boats that service them look like bathtub toys. Their blades span almost
400ft in diameter. But they will be dwarfed by those that DONG plans to
build off Yorkshire, which will have a diameter of 509ft.

Building and maintaining these giant farms is a huge logistical challenge;
Sykes says DONG is considering asking the likes of FedEx or DHL for advice
on streamlining operations.

But it is “too early to tell” whether all these efforts will mean that future
projects such as phase two of London Array, or other more ambitious
projects, will be economic for the subsidies on offer.

The current system is being replaced by long-term contracts guaranteeing a
‘strike’ price for power, with the wholesale price ‘topped up’ by subsidies.
Draft prices published last week offer £155/MWh from 2014, falling to
£135/MWh by 2018.

Sykes dismisses the idea these are more generous than current subsidies,
pointing out the new contracts last a shorter period, at 15 years. Their
true value, and whether they attract investment, will depend on details.

But the cost of energy does not equate to the strike price, he stresses; even
if the cost is cut to £100/MWh, the strike price will be higher as the
subsidies are “compressed to 15 years”. “You get the wholesale price plus
the top-up only for 15 years; the rest of the field life you only get the
wholesale price”.

The headline cost is not the only issue. Wind doesn’t always blow; when the
Prime Minister visited London Array on Thursday, wind was generating about
9pc of the UK’s needs; when the Telegraph visited the day
before, it was only around 2.5pc.

Critics such as Peter Lilley MP argue the prices don’t reflect the fact “you
have to have equal amount of gas capacity built for when the wind is not

Sykes bristles at this. “That shows a fundamental lack of understanding of how
the energy system works,” he says. “It’s one of the big myths that every
time we build 1GW of wind you have to build 1GW of backup.”

The costs of managing intermittent wind at planned levels should be “very
modest”, he insists – but “we would never say renewables on its own is going
to be the answer”.

While Sykes may have moved on from oil and gas, he’s not saying the world
should. “We need petroleum, it’s a vital part of our energy infrastructure
and it’s going to remain so for some time. It’s not question of choosing
between hydrocarbons or low carbon.”

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