UK offshore wind farms are set to be the first in the world to have to pay to produce power in what researchers have termed an “astonishing development” for the once-expensive energy technology.
A dramatic drop in the cost of offshore wind power, coupled with a slight rise in wholesale power prices, will likely mean the newest wind farms coming online will operate with “negative subsidy”.
This means operators effectively paying the Government to generate power. As a leader in offshore wind, UK schemes are likely to be the first to cross the ‘negative subsidy’ threshold – ahead of Europe – the researchers said.
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It is the latest indication of how dramatically offshore wind energy costs have fallen. Just a few years ago, wind farm operators struck deals with the Government to be paid generously for producing green power. Now the tables have been reversed, with the Government set to claw back some of the money it has paid out in subsidies over the last decade.
“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,” said lead author Dr Malte Jansen. “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.”
In exchange for a stable return, wind farm developers agree to sell their power at a certain price at Government auctions. Under the deal, if the wholesale cost of power is below the ‘strike price’ the Government pays the difference to wind farm operators. But if wholesale prices are higher, wind farms must pay.
Last year’s offshore wind auction brought the cost of offshore wind power down to around £40 per megawatt hour. The Imperial analysis suggests wholesale electricity prices are likely to rise above this level over the lifetime of the projects, so wind farm operators will have to pay the Government the difference between their £40 ‘strike price’ and the wholesale energy price. The savings will be passed on to households via their energy bills.
The cost of building and financing these schemes is now so cheap that the extra payments potentially due to the Exchequer will not stop their development, Imperial stressed. In fact, the research team predicted a “rapid expansion” of offshore wind energy over the next decade as deadlines for climate targets loom. The study is published this week in Nature Energy.