Today’s “resetting” of UK energy policy by Energy and Climate Change Secretary Amber Rudd proved to be thankfully short of news for the offshore wind industry. It was positive to see the Government’s commitment to offshore wind confirmed, especially given policy-induced upheavals in the onshore and solar sectors. This commitment was demonstrated by Rudd restating her expectation of reaching 10GW installed by 2020 and the announcement that there will be up to three rounds of CfD auctions in this parliament, starting in late 2016.
That commitment wasn’t unconditional. Rudd made it clear that support is dependent on achieving cost of energy reduction targets, although there was no sign of what these will be or when the industry needs to achieve them. This is nothing unusual or unexpected. The industry has been pushing for a ‘commit and review’ approach for a while and it is used to aiming for (and then beating) long-term cost reduction targets. We support this approach and encourage industry consensus about presenting what costs of energy it can deliver, if it given confidence in a reasonable market size. This is very much in the spirit of the new Offshore Wind Vision, published this week.
The challenging news for the industry is that Rudd suggested that even if the industry hit these cost targets, we might only see “…up to 10GW of new offshore wind projects in the 2020s”. At an average annual installation rate of 1GW, this means we will be moving backward. Developers installed more than 1GW a year back in 2011 and we are very likely to see higher rates towards 2020.
Our work for the Committee on Climate Change earlier this year showed that a market of 1.5GW per year (giving a total of 25GW installed by 2030) is the optimum level to unlock sustained cost reduction and give the best value to UK energy users. With 1GW a year, there is a risk that we won’t get the investment and competition we need to drive down costs.
Now that the industry has started to demonstrate significant savings, inward investment and growing numbers of local jobs, we need to find a route that works for energy users, the Government, the offshore wind industry and the UK economy. Today’s statement is not the doomsday message some had feared, but it does show the Government still doesn’t get the full potential of offshore wind, even though the industry can get to being ‘subsidy free’ by the mid-2020’s.