Government policy on offshore wind can accelerate the industry and save billions for UK energy users
Insight from new report by BVG Associates for Committee on Climate Change
30 June 2015
BVG Associates has published today the first quantitative study of the effect of government policy on cost of energy from offshore wind during the 2020s.
The study was commissioned by the Committee on Climate Change (CCC). The CCC is an independent organisation set up by Government to advise it on emissions targets and preparing for climate change, including for the energy generation sector.
The study considers the effect of a range of policy drivers in the context of a predominantly pan-European market. It shows that simply by giving better visibility and confidence of future levels of deployment to the offshore wind industry, the Government could cut £1.9 billion in the 2020s from the cost to UK energy users of offshore wind projects built between 2021 and 2030, compared with the current approach. Visibility in the shorter-term means rolling clarity on the anticipated size of CfD auction pots. In the longer-term, visibility and confidence come from a stable policy environment based on a rational, framework for low-carbon energy that prioritises technologies offering the lowest cost solutions.
Further, the study shows what could happen if the UK Government, along with others in the rest of Europe, decided to facilitate an accelerated programme of deployment. In this case, offshore wind would generate 35% more electricity in 2030, but at a cost increase to UK energy users, for offshore wind during 2020s, of only 4%, due to the increased pace of cost of energy reduction. It also shows that under a holistic combination of policy drivers, the cost of offshore wind energy could fall to around £80/MWh for projects first generating in 2030. By then, it will already be cost competitive with other new-build electricity generation technologies, including combined cycle gas turbines.
The report is published alongside the CCC’s new progress report and will feed into its recommendations for the fifth carbon budget, due to be published later this year.
In 2012, BVG Associates published what remains the most comprehensive, industry supported, study yet into the impact of technology on cost of energy in offshore wind, looking to 2020.
Like that work, this study is groundbreaking in being the first published work to quantify robustly the impact of policy on cost of energy in offshore wind, this time looking to 2030. Again, it is based on detailed engagement with industry at a senior level and transparent modelling of the impact of policies on each element of supply, taking into account the interactions between the UK and other European markets.
The report identifies the key elements of a policy strategy for offshore wind in the 2020s that balances effectiveness in cost of energy reduction with efficiency in minimising support cost to UK energy users. The analysis covers a set of inclusive, holistic policy options including market scale, visibility, publicly funded R&D and other government-led interventions. The report is available for download from the Publications page.
Lead-author, Chris Willow, said: “The CCC set us a tough challenge, to unpick the impact of government policy on a diverse supply chain in a dynamic sector. With the help of deep engagement with industry, we have for the first time separated a range of different policy drivers and quantified their impact on each of the key areas of that supply chain.
“We hope that in being robust and transparent, we will provide real substance into the discussion between industry and governments, as they work together to establish a way forward for cost effective energy generation in Northern Europe.”
Project director, Bruce Valpy, said: “The offshore wind industry has long said that visibility and confidence have a huge impact on investment and cost reduction. Here is the industry’s best attempt at providing the evidence.
“A strong relationship between a growing industry and governments wanting low-cost, low-carbon, home-grown energy and strong local benefit can achieve a great deal. We are committed to helping both sides grow that relationship.”