Household energy bills could be set to drop as wind energy becomes even cheaper to produce in the UK, according to a new study performed by Imperial College London.
Dogger Bank
Renewable energy projects, including offshore wind and solar farms, have, until now, been subsidised by government support schemes, which have raised awareness about clean energy and the cost of electricity bills.
Recently-approved projects are likely to operate with negative subsidies – paying money back to the government. This money could go towards reducing individual household energy bills as the offshore wind farms start producing power in the mid-2020s.
The findings were published by the team in Nature Weekly at the end of July.
Lead researcher Dr Malte Jansen from the Centre for Environmental Policy at Imperial, said: “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.
“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. This is an astonishing development.”
The analysis focused on five countries in Europe, including the UK, and focused on a series of government auctions for offshore wind farms between February 2015 and September 2019. Companies that want to build wind farms bid in the auctions by stating the price at which they will sell the energy they produce to the government.
These contracts for difference – or CfD’s – represent the company’s plan to produce and distribute the energy. If a company’s bid is higher than the wholesale electricity price on the UK market once the wind farm is up and running, then the company will receive a subsidy from the government to meet the costs.
If the stated price is less than the wholesale price, then the company is to pay the government back the difference. This paycheck is relayed to consumers' energy bills, reducing the amount that homes and businesses need to pay for electricity.
The auction that took place back in September 2019 made headlines as the winning companies announced they could build new offshore wind farms for the record price of £40 per megawatt-hour (MWh) of power.
Researchers hope this is a trend that continues and the costs of setting up and maintaining such wind farms continue to drop.
The team analysed likely future price trends and found that contracted price is very likely to be below the UK wholesale price over the lifetime that these wind farms would produce electricity, from the mid-2020s onwards.
The team say these new farms are likely to be built and run with these costs, since financing is now accessible at lower costs for such projects, owing to trust in the now mature technology.
The team then analysed similar offshore wind auctions help by the government of the five other countries selected for the research and found that Germany and the Netherlands have seen some zero-subsidy offshore wind farms winning actions, but that UK projects are likely to be the world’s first negative-subsidy offshore wind farms.
Dr Iain Staffell, from the Centre of Environmental Policy at Imperial, said: “The price of offshore wind power has plummeted in only a matter of a decade, surprising many in the field.
“The UK auctions in September 2019 gave prices that were around one-third lower than those of the last round in 2017, and two-thirds lower than we saw in 2015.
“This amazing progress has been made possible by new technology, economies of scale and efficient supply chains around the North Sea, but also by a decade of concerted policy making designed to reduce the risk for investing in offshore wind, which has made financing these huge billion-pound projects much cheaper.
He added: “These new wind farms set the stage for the rapid expansion needed to meet the government’s target of producing 30% of the UK’s energy needs from offshore wind by 2030. Offshore wind will be pivotal in helping the UK, and more broadly the world, to reach net-zero carbon emissions with the bonus of reducing consumers’ energy bills.
Rapid technology development, particularly the ability to build larger wind turbines further out at sea, is one reason the price of offshore wind has dropped so rapidly. Larger turbines can convert more wind into energy and can have access to more consistent wind speeds at higher altitudes.
The biggest ones currently under construction have a rotor diameter of approximately 220 metres. Such farms are also getting larger with the newest one at Dogger Bank having the same installed capacity as Hinkley Point C and is expected to produce about two-thirds of its annual capacity.
Success with these wind farms also means the UK can export its expertise of creating them across the world.
The researchers also state this success could be used to fuel more ambitious wind projects that could be produced at offshore wind farms, such as producing hydrogen fuels using the wind power on-site, out at sea.
Hydrogen fuels could be another key technology in helping decarbonise the UK, by replacing petrol used in transportation and natural gas used for heating homes.
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