Britain’s offshore wind sector will slash the cost of generating electricity by almost half over the next five years, making it cheaper than new nuclear plants for the first time.
In a series of subsidy-based contracts awarded today by the Department of Energy, the guaranteed price for electricity for the winning wind farm operators was £74.75 per megawatt hour (Mwh) in 2021/22 and £57.50 for the following year.
That compares with £150 per Mwh for some projects currently in production and the guaranteed price of £92.50 for the Hinkley C nuclear plant, currently under construction but behind schedule and expected to start generating power in the middle of the next decade.
Emma Pinchbeck, RenewableUK’s executive director, described the reduction in costs as truly remarkable, while Caroline Lucas, the head of the Green Party, called it the ‘death knell’ for Hinkley C.
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Hinkley’s builder, EDF, defended the plant saying that even though costs were falling wind was too unpredictable to be the main power source and the UK needed a "diverse, well-balanced" mix of low-carbon energy.”
European group Dong Energy was awarded a contract for the second phase of its Hornsea project with EDP Renewables and Engie, the former GDF Suez, also to receive £57.50 per Mwh for their Moray East offshore wind farm.
Atlantis Resources Limited (LON:ARL), which operates the Meygen tidal wave project in the Pentland Firth did not get a contract but has started talks with the Department of Energy to have a separate category established for new technologies such as tidal.
Atlantis said even though it had reduced the level of revenue support required for the next phase of the project by two-thirds, this was not enough to compete with offshore wind farms.
Chris Tanner of environmental infrastructure fund John Laing Environmental Assets Group Limited (LON:JLEN) said wind and solar have shown a tremendous fall in costs over the brief period they have been around at scale and if that progress continues these projects can stand up without subsidies.
“At that point it will be hard for government to say we don’t want low cost, low carbon forms of electricity when they are cheaper and cleaner than building new gas plants.”