Offshore wind blows away the competition
Meeting target of 40 gigawatts by 2030 will cut UK energy bills and increase energy security, as turbine costs continue to fall.
By Dr Simon Cran-McGreehin@SimonCMcG
The Government’s Net Zero Strategy reaffirmed its confidence in the huge success story that is the UK’s offshore wind sector. The target of 40 gigawatts (GW) of capacity by 2030 is the next milestone on the way to a likely 95GW by 2050, when turbines out at sea would supply the largest share of our electricity – free from volatile international gas markets.
This confidence is well-earned, with deployment accelerating rapidly to generate more clean power, jobs and industrial redevelopment – and with the growing economies of scale helping to drive down costs. The UK’s offshore wind capacity has grown from 1GW in 2010 to over 10GW today (enough to power 7 million homes) with several world-beating wind farms coming online soon. The UK’s 50GW pipeline of projects includes the 1.3GW Hornsea Two that will start generating in 2022, Hornsea Three at 2.4GW, and Berwick Bank aiming to add 4.1GW in 2026.
The huge rate of expansion of this homegrown renewable resource is linked to the industry’s jaw-dropping cost reductions. Back in 2011 the Government challenged the sector to show that it could cut costs (measured in £ per megawatt hour of energy produced, £/MWh) and compete with other forms of power generation. The Offshore Wind Cost Reduction Task Force was established, and in 2012 estimated that it could reach £100/MWh by 2020 – down from £149–191/MWh, if various technical and financial obstacles could be overcome.
Roll forwards to the present and that target has not only been achieved – it’s been spectacularly exceeded. With new projects taking advantage of huge efficiency savings in manufacturing, deployment and maintenance, they are able to bid at ever-lower prices for Contracts for Difference (CfDs) to supply power in the UK. In 2019, windfarms were winning CfDs at £40/MWh from 2023/24 (in 2012 prices – used in CfD system); a third lower than at auctions in 2017, and two thirds lower than in 2015.
For anyone interested in the differences between the CfD prices and the Government’s cost estimates, don’t worry – there’s no conspiracy, and we’ve provided a footnote with the details. The key point is that, by anyone’s measure, offshore wind costs have gone through the floor and are still falling.
Bizarre attempts to undermine this great UK success story have been comprehensively dismissed by experts, with informed commentators agreeing with the obvious facts – that offshore wind is massively cheaper than it was 10 years ago, and is becoming cheaper still. It had already become cheaper than gas for electricity generation – and with electricity prices having ballooned due to the gas crisis and predicted to remain high into 2023, the UK’s low-cost windfarms will actually pay money back and cut our energy bills at a time when we need it most.
Looking ahead to 2040, the Government currently forecasts the costs of offshore wind to fall by another 30%. If recent examples are anything to go by, there might be some future windfarms bidding even lower than that.
Strategic role in UK’s energy system
Renewables are increasingly contributing to the UK’s energy security, with the ability to rapidly deploy generation capacity helping to ensure sufficient supplies of electricity. Onshore windfarms can be constructed in a few months, solar farms in weeks, and massive 1GW-scale offshore windfarms in just three years, far faster than traditional power plants. And the modular approach used at offshore sites such Hornsea means they can be extended as needed.
The ever-improving technology and widening geographic range of offshore wind is allowing the UK to develop it into a strategic energy source. Higher wind speeds can be accessed using taller turbines and deep-water sites, translating into higher load factors (58% for projects starting operating from 2023, compared to an average of 40% for existing sites) and more power production even on low-wind days. Furthermore, spreading the windfarms out reduces the chances of low-wind affecting all of the turbines simultaneously. So, if for example, when we’re looking at 95GW of offshore wind by 2050, there will be fewer days when wind power across the fleet drops to low levels.
One of the key developments to support this strategy is on the horizon – or rather, far beyond the horizon in literal terms. The Government is providing funding to continue development of floating wind turbines – and has a commitment to deploy 1GW by 2030 (as part of the 40GW offshore wind target). Tethered to the seabed without the need for firm foundations, these floating turbines can sit in much deeper waters where the winds are stronger. This allows even larger turbines with higher economies of scale, and higher energy output through their lifetimes that reduces the average cost per megawatt.
With the Offshore Wind Catapult publishing its plans for reducing the costs of floating wind turbines, the industry has taken up the gauntlet. And based on its performance to-date, the offshore wind sector can be expected to breeze on through to this new prize – tapping the UK’s vast natural energy resource to help power the journey to net zero.
 The CfD market mechanism is said to have created a ‘virtuous circle’, using auctions to set wholesale prices, which give certainty for developers and thereby reduce their risk and allow them to obtain cheaper finance. This cuts project costs for and reduces the cost of offshore wind’s electricity by 20-30%.
 The CfD’s actual price data and the Government’s forecasts both show costs continuing to fall into the future. For projects that start generating in 2025, the Government forecasts costs of £57/MWh (in 2018 prices), down by almost half from the estimate of £106/MWh made as recently as 2016. There are three main reasons why the estimate for 2025 is higher than the CfD price for 2023/24. The first two are simple definitional points.
Firstly, the values are for slightly different years, so the Government estimate includes more inflation. Secondly, there’s the difference in the years used for the cost basis. The £40/MWh is in 2012 prices because that’s what the CfD uses; it also happens to make it easy to see by how much the £100/MWh target (set in 2012) has been smashed. The Government’s £57/MWh figure for 2025 is in 2018 prices, and so includes six years of inflation since 2012.
Thirdly, they use different approaches to assess the costs of future offshore wind projects. The Government makes estimates based on engineering analysis, supply chains, cost histories, etc and models future costs for particular sizes of windfarm in particular depths of water. Those windfarms with the record-breaking low CfD bids have further economies of scale due to their larger size and lower construction costs due to shallower water. So, actually, with such huge projects in the pipeline, maybe the model to forecast future costs will have to be updated to reflect even larger cost savings. And given that these bids are made by companies that have to cover their costs, these low costs are reliable real-world values.
 The Government's forecast costs (in 2018 prices) are £57/MWh for 2025 and £40/MWh for 2040, i.e. a fall of 30%. Please note that this figure of £40/MWh is not the same as the CfD bids of £40/MWh for 2023/24 as the latter is in 2012 prices.
 The load factor of an electricity generator is the amount of energy produced in a year as a percentage of what would be produced if it was constantly operating at full output.