Could East Anglia’s offshore wind face a rocky road ahead?
06:00 27 December 2014
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Giant wind farm projects off the East Anglian coast face a challenging road ahead, reports business editor Ben Woods.
Plans to build an offshore wind farm off the coast of East Anglia could be resurrected in the Spring, it has been revealed.
Developer RWE Innogy said it was in talks with a several potential partners to build the Galloper wind farm, despite shelving the project two months ago.
Stephen Thomas, head of communications for RWE Innogy UK, confirmed that RWE was talking with “a number of companies” with SSE to go ahead with Galloper as a Contracts for Difference Project, but with an outside possibility of the project still being developed under the Renewables Obligation.
“We are looking at all options for Galloper to see where the project goes in the future. We all want the project to work.”
“We hope that in March/April time, we can come out with something that explains what the future for the project is.”
If funded, the project would see 68 turbines built off the Suffolk coast, estimated to be worth £20m and 850 jobs to the local economy.
In a statement, RWE said: “This process naturally involves engaging with a number of different companies, however at this stage, no appointments have been finalised and as such, we are unable to provide any further details at this time.”
Peter Aldous, MP for Waveney, added: “This is excellent news that the plans are still moving forward. This project will result in significant benefits to the whole region – and our economy and employment prospects.”
It has been a tumultuous year for offshore wind.
Last summer the government fired the starting gun for the world’s largest wind farm to be built off the coast of Norfolk and Suffolk.
With the prospect of creating of 1,800 jobs and pumping £500m into the local economy, the 240-turbine East Anglia One project was seen as a major vote of confidence in the region’s energy sector.
However, just four months after planning permission was granted, the winds of change started to blow in the opposite direction.
Scottish Power Renewables – the developer of East Anglia One with Vattenfall Wind Power – announced that it was significantly scaling back the wind farm, while the developers behind the 68-turbine Galloper wind farm project, located south of Suffolk, shelved the scheme altogether.
It begged the question: what does the future hold for offshore wind in the coming months, and what impact could this have on the energy sector in the east?
For Galloper and East Anglia One, the future lies in government funding.
In October, developer RWE released a statement announcing their decision to put Galloper on ice.
The project was deemed too risky when it took into consideration the “tight time scales” available to secure funding while trying to qualify for subsidies under Renewable Obligation – a soon to be replaced government support scheme.
Securing a healthy return on investment has always been the single most important factor for big energy companies looking to roll out giant wind farms.
The job of the government has been to ensure this happens by offering enough subsidies to make projects viable, without heaping too much extra cost on consumer energy bills.
Local policy makers have remained confident that this could still be achieved for Galloper, even during its darkest hours.
And on Wednesday, their hopes took a step closer to being realised when RWE Innogy confirmed that it was “investigating all options”, and may look to progress Galloper under Contract for Difference (CfD) – the government subsidy scheme replacing the Renewable Obligation.
On the surface, this renewed sense of optimism is good news for Norfolk, Suffolk and Lowestoft port especially, which is to become the home of the project’s operation and maintenance base, if the development goes ahead.
Reaching that stage of certainty, however, will prove a challenge under the new CfD government subsidy scheme, which has already sparked protest from areas of the renewable energy industry.
The main concerns centre around the size of the budget available for offshore wind and marine energy for 2014/15. At £235m – £80m of which will be allocated to project operating from 2017/18 onwards – the amount is significantly less than what the industry was expecting.
The cash pot is enough to support 800-900mw of offshore wind, when it is estimated that 3.5-4gw of capacity will competing in the funding round – East Anglia One alone has a capacity of 1,200mw.
Meanwhile, developers face the added pressure of having to pitch for the funding in a CfD auction, with no certainty that they will walk away with any money.
Together, these two factors have led Scottish Power Renewables to scale back the East Anglia One project. But it is not only developer facing a tentative few months ahead.
Gareth Miller, principal consult at Norwich-based energy consultancy Cornwall Energy, believes the auction could result in only one East Anglia offshore wind project getting the funding it needs to build.
“With the budget only being sufficient to support a little over a fifth of the capacity coming forward, there is going to be way more demand than supply,” he said. “For the couple of projects that currently are planned to exceed 800mw, this will lead immediately to a down-scaling of project sizes in advance of the auction to try and squeeze into the budget envelope. We have already seen Scottish Power confirm that they are scaling back the East Anglian project along these lines. Racebank [a proposed offshore wind project situated off Blakeney Point in Norfolk] is not so impacted given its size. More critically though, it also means that only one of the projects off our coast that are competing in the auction could get support, and it is entirely feasible that none do.”
“Secondly, if one of our regional projects misses out this time it can have no certainty over what the competitive landscape might be in the next allocation round slated for winter 2015,” he added.
“Government has given absolutely no indication of how much money they will make available for that auction for less-established technologies, and it is unlikely that there will be any clarity on that until the summer of 2015.
“We know there might be about £1bn to play with for annual auction rounds for projects that commission between 2015-2020, and that the industry will be working hard to make the case for government to be bolder when it comes to spending more in the 2015 round to support offshore wind.
“But, the £1bn needs to be shared between less-established and established technologies (who face their own annual auctions) and we anticipate that government is unlikely to part with all the cash, all at once. Notably, the 2015 auction could also attract three other offshore wind projects not capable of entering the process in 2014 (another 2-2.5GW), So, 2015 could be just as competitive with similar amounts of money up for grabs, and no material increase in the prospects of auction success.”
With next year ushering in a general election, and possibility of a new government, the sense of uncertainty surrounding offshore wind looks set to be amplified further.
Simon Gray, chief executive of the East of England Energy Group (EEEGR), believes the prospects are bright for the region’s renewable energy industry, but the political atmosphere could cause problems.
“We had concerns over round three in that allocation the government has set is far lower than industry was anticipating and a lot of it is down to it being five months until an election,” he said. “There will be a period of stasis and no one wants to nail their colours to the mast.
“The Conservative party have had their heads turned by what the American’s are doing with shale gas.
“In terms of offshore wind, the allocation will be smaller, but the money is still significant and our region has the experience and the right conditions to deliver. East Anglia remains a really good choice for development, unless it becomes a political decision.”
The challenges facing offshore wind makes decision-making difficult for developers, but this uncertainty can also trickle down to the Norfolk and Suffolk supply chain as well.
Small and medium sized companies in Norwich, Great Yarmouth and Lowestoft will be hoping for clarity as soon as possible to ensure they remain competitive and capable in the months ahead.
Mr Miller said: “Given the uncertainty about which regional project is likely to succeed in getting a CfD – if any - regional businesses face difficult decisions about how best to prepare. Do they ramp up in anticipation of East Anglia winning a CfD? What costs are associated with that, and are these bearable if the projects lose out? Or, do they wait for the auction outcome and ramp up if one of our regional projects is successful? How easy would this be to do and would it place them at a competitive disadvantage to firms who had taken a bet on success? It must be tough for short to mid-term planning.”
Stumbling blocks aside, the UK will still remain a global leader when it comes to offshore wind capacity, and there is plenty of promise to suggest that this will continue, with obvious rewards for the Norfolk and Suffolk economy.
What remains to be seen is what East Anglia’s offshore wind capacity will look like come the results of the CfD auction next year.
In the mean time, the government remains resolute that the decisions it is making now are enabling it to meet its targets in the future.
“We are on track to deliver over 10gw by 2020,” a spokesman from the government’s Department of Energy and Climate Change said. “Ensuring the UK remains the largest market in the world and giving industry and the supply chain the volume certainty to invest and drive down costs.”
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