Hull of a Wind Behind It

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ONLY a few years ago, economists derided offshore wind as a ludicrously expensive way of cutting carbon emissions. They saw support for it by the previous government as a boondoggle to a technology whose main selling point was that Britain led the world in its use. On September 11th a stunning drop in the cost of offshore wind in a government auction blew holes in those convictions. It suggests that an adolescent industry, increasingly centred around Hull and the east coast of Yorkshire, is coming of age. “We’re looking for North Sea wind as being to the UK economy for the next 50 years what oil and gas was for the last half century,” says Michael Grubb, a professor of international energy and climate-change policy at University College London.

That is a big claim. After all, the auction of the government’s “contracts for difference” grants a 15-year subsidy to the winners, whereas for decades taxes from North Sea oil subsidised the government. And offshore wind last year supplied only 5% of Britain’s electricity. But the auction underlined how a firm public commitment to offshore wind can lower its costs to the point where it competes with natural gas and nuclear energy as a source of electricity, and still attracts investment. It also showed how the government’s way of running auctions has improved over time

The experience of Dong Energy, a Danish firm that won the biggest contract, highlights how costs have fallen. Its Hornsea 2 project, to build a 1,400-megawatt wind farm off the coast near Hull at a guaranteed price of £57.50 ($76) per megawatt hour (MWh), is adjacent to another site where in 2014 Dong got the go-ahead to build a slightly smaller project, Hornsea 1, at £140 per MWh. The government has endorsed a similar contract for the planned Hinkley Point C nuclear-power station, but at what now looks like a ludicrously expensive £92.50 per MWh for 35 years. Wholesale prices are currently around £40 per MWh.

Samuel Leupold, head of wind power at Dong Energy, says the adjacent Hornsea 1 and 2 sites will help to lower costs, as will more powerful turbines. Both projects will have 190-metre turbines, about the height of London’s Gherkin skyscraper, but the newer site’s capacity will be greater. Mr Leupold says that the industry has got better at laying the concrete subsea foundations on which the turbines rest, and has invested in tailor-made supply vessels, rather than knock-offs from the oil-and-gas industry. A British supply chain, slow to get started, is catching up. Turbines are still produced abroad, but in Hull Siemens, a German firm which makes some of Dong’s turbines, has this year started producing 75-metre blades.

The auction system, reformed in 2015, is also making the industry more competitive by letting developers decide where at sea they should locate their wind farms, Mr Leupold says. This compares favourably with parts of continental Europe, where governments pick the sites.

As a result, Britain remains the world leader in offshore-wind power, and is expected to double capacity by 2020 (see chart). RenewableUK, an industry body, expects it to receive $11.5bn in offshore-wind investment in 2017-21, more than is being spent on broadband infrastructure. But Jatin Sharma, head of offshore at GCube, an insurer, advises against getting too blown away. He says developers are putting a lot of pressure on suppliers to cut costs. That can lead to sloppy workmanship and delays. “There seems to be an indifference to risk,” he says.

The Economist

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