Offshore wind farms may not be built unless subsidies are increased, the government’s official climate change adviser has warned, in the latest blow to the Coalition’s energy policy.
The Committee on Climate Change (CCC) has written to Ed Davey, the Energy Secretary, to warn that “required investment is at risk under current proposals”.
Proposed reductions in subsidy levels for offshore wind farms this decade are too severe for the cost reductions that the industry can achieve, it warns.
Ministers also appear to have dramatically scaled back their ambitions for how much offshore wind is wanted in the long-term, undermining confidence in the sector.
This creates a vicious circle whereby developers are reluctant to make the investments that would be needed to reduce costs, the CCC warns.
David Kennedy, chief executive of the CCC, said: “I have spoken to every major investor and they are all concerned.”
The Government has insisted it is committed to offshore wind, despite public disagrements over onshore wind, and claims to have provided a “a stable and certain regime that is attractive for investors in renewables”.
Michael Fallon, the energy minister, said recently: “The UK leads the world in offshore wind power generation with more capacity than the rest of the world combined, and we want to see this sector grow even further.”
Offshore wind is expensive to build and is not economically viable without subsidies, which are paid for by levies on consumer energy bills.
Ministers say the costs of offshore wind must fall dramatically and in late June unveiled proposed reductions in subsidy levels or “strike prices” over the rest of the decade.
“The proposed strike prices for offshore wind start at a broadly appropriate level but then fall more rapidly than the evidence suggests is achievable,” Lord Deben, chairman of the CCC, writes. “This would put required investment… at risk.”
Under the proposals, wind farms that start running between 2014-15 and 2015-16 would be offered £155 for every megawatt-hour (MWh) of electricity generated over a 15-year contract – about three times the market price of electricity. This would fall to £150/MWh for projects starting up in 2016-17 and then to £135/MWh by 2018-19.
Lord Deben says the fall is too steep and that “a degression closer to £5/MWh (rather than £15/MWh) between 2016/17 and 2018/19 is more likely to be appropriate”.
He also warns that investors are spooked by government documents showing it believes there may be relatively little new offshore wind this decade and next.
Ministers have previously suggested Britain could betwen 11GW and 18GW installed by 2020, up from 3.3GW now, with a further 1.2GW already under construction.
But in a letter to Mr Davey, Lord Deben, chairman of the CCC, points out that in 10 out of 11 scenarios set out by National Grid for the energy department, there are between 8GW and 10GW of offshore wind installed by 2020.
Only in one scenario is there 16GW, and this scenario makes other assumptions that mean its credibility is “highly questionable”.
Ministers also appear to be contemplating the possibility of there being “minimal investment” in offshore wind during the 2020s, further denting confidence.
“Without a commitment to ongoing investment in the 2020s, incentives for supply chain investment and project development are weak, and commercialisation of offshore wind is at risk,” Lord Deben warns.
Challenged on the issue on Monday, Mr Davey said investors should be confident because of Britain’s legally-binding carbon emissions targets.
“It’s quite clear that offshore wind costs could come down quite significantly and the more they come down the more offshore wind there will be,” he said.
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