Several proposed offshore wind farms may be scrapped in coming months because the Government is not awarding enough subsidies, the head of energy giant ScottishPower has said.
Keith Anderson, chief corporate officer, said it was cutting the size of its planned 240-turbine East Anglia offshore wind farm because the budget for subsidies to be awarded this year was “not big enough”. The project could be scrapped altogether if it did not secure a subsidy contract this year.
Those offshore wind farms that do get built in coming years will be unnecessarily expensive because ministers are effectively forcing companies to build smaller projects, preventing them from developing economies of scale, he claimed. As a result the Government would miss its own target for cutting offshore wind’s costs by 2020, Mr Anderson, the former head of the Offshore Wind Industry Council, forecast.
Offshore wind farms are heavily subsidised through levies on consumer energy bills. Ministers are preparing to award subsidy contracts for new projects in a “reverse auction” over coming months, but the maximum available budget is barely half the size the wind industry had expected, Mr Anderson said.
About five projects are expected to compete for the subsidies, which can realistically fund just one 700MW-800MW offshore wind farm, according to industry body Renewable UK.
Mr Anderson told the Telegraph that ScottishPower was being forced to scale back its proposed 1.2 gigawatt (GW) wind farm off the coast of East Anglia in order that its total annual subsidy requirement would be less than £235m – the maximum budget being awarded this year.
Even then, it risked losing out to rival projects.
“There will be more applications than there is budget,” Mr Anderson confirmed. “I think on the back of the auction there will be a lot of companies re-examining what they do with their projects and whether they are viable any more.
“We are hopeful we can submit a competitive bid and win, but if we are sitting here in January and have not got a contract we would have to totally reschedule the project timeline. Until we had analysed all of that we wouldn’t have a clue as to whether the project would still be economically viable. We would have to totally reassess and re-examine the whole project.”
No subsidy allocation has been confirmed to be awarded next year, although ministers have indicated there is roughly £1bn to be allocated over the rest of the decade.
Mr Anderson said that by awarding such limited budgets at a time, the Government was stymieing its own aim of cutting the technology’s costs.
Offshore wind farms currently receive about £150 – roughly triple the market price of power – for every megawatt-hour of power they generate. Ministers have said that cost should be cut to £100 for projects being awarded contracts in 2020.
“You cannot build a huge big project, so you will not get the big economies of scale,” Mr Anderson said. He said the kind of projects being proposed now had originally been expected to be at least 1GW each in order to drive cost efficiencies.
“Our belief is if you drove the process to do projects of that size and scale you would drive the costs down harder and faster. If you push the projects down to smaller size and scale, we don’t think you will get the cost reduction coming through the industry as quickly as you could.
“If you wanted to hit magical £100 target by 2020, I think doing it this way pushes it out by a few years,” he said. “It’s been made more difficult and it will take longer.”
Energy Secretary, Ed Davey, said the government had no plans to its increase its subsidy cap so as to ensure customers get best value for money.
“It’s very important that government has a budget and doesn’t have unconstrained spending which won’t provide the best value for consumers” said the Liberal Democrat minister.
“Having a disciplined budget will help drive competition and if it means we only get the most efficient projects coming forward ahead of others, then I celebrate that.”
Mr Davey added that he believes the government is still on target to bring down the costs of wind power by 2020.
“Green energy is part of the government’s long term economic plan and we are seeing wind generation increase in very big increases. We are ahead of our targets.”
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