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CfD Round Two results are in, offshore wind cheaper than gas and nuclear

By: Tom Russell 11/09/2017 4C Offshore

General Windfarms

Three offshore wind farms have been successful in the UK Government's latest Contracts for Difference (CfD) auction with strike prices reaching as low as £57.5/MWh from 2022-23.

The successful projects include DONG Energy's Hornsea Project Two, EDP Renováveis (EDPR) and Engie's Moray Offshore Windfarm (East) as well as Innogy and Statkraft’s Triton Knoll project.

Both Hornsea Project Two and Moray East are to be delivered in 2022/23 with a strike price of £57.5/MWh (€63.31/MWh), whilst Triton Knoll is expected 2021/22 with a strike price of £74.75/MWh (€82.31/MWh). Prices are guaranteed for 15 years of an expected project lifetime of 25 years.

The new wind farms, with a total capacity of 3,196MW, will power the equivalent of more than 3.3 million homes

The Low Carbon Contracts Company now has 10 working days in which to make an offer to the successful developers. Developers then have 10 working days after the offer is made to return signed contracts. The Low Carbon Contracts Company is a private company, owned by the Department of Business, Energy and Industrial Strategy (BEIS) and its primary role is to manage CfDs with low carbon generators throughout their lifetime, which involves management of the contracts as well as the Supplier Obligation Levy that funds CfD payments.

The results of the auction show that cost of offshore wind projects are now nearly 50% lower than the first auction held in 2015 when comparing the lowest clearing price for successful offshore wind projects commissioning in 2018/19 and the lowest clearing price for offshore wind projects commissioning in 2022/23. In round 1, East Anglia One and Neart na Gaoithe were successful with strike prices of £111.89/MWh and £114.39/MWh respectively.

Furthermore, the offshore wind prices announced today (11th September 2017) are cheaper than the cost of the 35-year contracts for new nuclear power of £92.50/MWh, and cheaper than the levelised cost of gas, according to figures from BEIS.

RenewableUK’s Chief Executive Hugh McNeal said: “Today’s results mean that both onshore and offshore wind are cheaper than gas and nuclear. But this young, ambitious industry can go even further. The Government can help us by continuing to hold fiercely competitive auctions for future projects, as it has promised, and by putting offshore wind at the heart of its upcoming Industrial Strategy."

The UK has the largest offshore wind capacity in the world and according to the UK Government, low carbon businesses have a combined turnover of £43bn, employing 234,000 people.

Minister for Energy and Industry, Richard Harrington, said: "The offshore wind sector alone will invest £17.5bn in the UK up to 2021 and thousands of new jobs in British businesses will be created by the projects announced today. This government will continue to seize these opportunities as the world moves towards a low carbon future, and will set out ambitious proposals in the upcoming Clean Growth Plan."

With a capacity of 1,386MW, enough to power over 1.3 million UK homes, Hornsea Project Two is poised to become the world’s biggest offshore wind farm, surpassing the 1,200MW Hornsea Project One, also under development by the company Hornsea Project Two will be built 89km from the Yorkshire coast, across multiple phases, and is expected to be operational from 2022.

Samuel Leupold, Executive Vice President and CEO of Wind Power at DONG Energy, said: “We have always promoted size as a key driver for cost. The ideal size of an offshore wind farm is 800-1,500MW, and therefore it is natural that Hornsea Project Two will deliver record-low costs to society. At the same time, the low strike price demonstrates the cost saving potential of developer-built offshore grid connections, which in the UK is included in the project scope."

With an anticipated capacity up to 900MW, Triton Knoll will be located approximately 50km off the Lincolnshire coast and is currently being developed as a joint venture between Innogy Renewables UK Ltd (innogy) (50%) and Statkraft (50%), with innogy managing the project on behalf of the partnership. The developers confirmed they are moving towards a financial close for 2018, after which onshore construction could then begin.

James Cotter, Triton Knoll Project Director, commented on today's results: “Triton Knoll will be one of the most cost effective wind energy projects in UK waters, delivering an expected minimum of at least 800,000 homes equivalent of sustainable, renewable energy. It will benefit local and UK businesses as we aim to deliver around 50% UK content from our investment across the project’s lifecycle, and can help nurture skills for the future. Throughout, we’ve worked closely with our supply chain partners prior to our bid to ensure that, not only do we have a highly competitive project, but one that is highly deliverable and ready to go for the benefit of UK consumers."

In 2009 Moray Offshore Renewables Ltd won the rights to develop offshore wind generation in Zone 1 (The Moray Firth) of the UK’s 3rd round of offshore wind licensing. After initial examination of the zone it was found that there were fewer constraints to development in the east than in the west, so the zone was split into two parts, the Eastern and Western Development Areas. This allowed development of Moray Offshore Windfarm (East) (known as Moray East) to commence 2010. The project is owned 76.7% by EDPR and 23.3% by ENGIE. Consent was granted for the project in 2014 by the Scottish Government. The 1,116MW project will be located off the east coast of Scotland and is expected to produce enough power for 950,000 UK homes.

Dan Finch, Managing Director of Moray Offshore Renewables, said: “Moray East’s success in this auction will enable us to bring a high-quality, high-value offshore wind project to the UK, and I would like to thank all of the organisations, individuals and communities with an interest in the Moray Firth with whom we have worked to reach this vital milestone. Moray East also brings major economic opportunities to our supply chain. Innovation and co-operation have enabled the cost reduction which ensured success in this auction. Electricity from Moray East will be produced at the lowest cost of any offshore wind farm around the UK, with exceptional benefits to consumers.”

The next Contracts for Difference auction (round three) is planned for spring 2019 however the government did not disclose how much of the £557m will be available in this round or whether it plans to hold multiple rounds.

For more information, please follow the links provided. You can also view the project, and others worldwide, using 4C Offshore's interactive map.

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CfD Round Two results are in, offshore wind cheaper than gas and nuclear

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