Blown Off Course: Have Scotland's ambitions for offshore wind gone awry?

Second only to China, the UK’s offshore wind sector punches well above its weight on the world stage. Offshore windfarms in the UK have the capacity to produce just under 14GW, a figure which almost doubles when projects currently under construction are included.

But despite huge progress over the last decade, the UK is set to miss its target of reaching 50GW capacity by 2030. Consultancy firm Cornwall Insight predicted last month the UK was on track to deliver 47.1GW by then – and attributes this to rising costs in the supply chain.

Nowhere was this risk more apparent than the recent Contracts for Difference (CfD) auction round. Established by the UK coalition government back in 2014, CfD was designed to support renewable energy by providing stability and predictability for developers. It proved so popular that the UK Government made the decision to run a round each year rather than every two years.

But the most recent round, Allocation Round 5 (AR5), “didn’t just under deliver, it failed completely – zero,” says Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit. The auction failed to attract a single bid from the offshore wind sector in a huge blow to net-zero ambitions.

Some of the big developers of offshore wind are seriously considering basically, what can their commitment to the UK be

It was, adds Cran-McGreehin, a “totally avoidable car crash”. That’s because it was caused by the UK Government’s decision to set the maximum strike price – a guaranteed price to be paid to wholesale generators – at £44 per megawatt hour.

“We could have got 5GW of shovel-ready projects,” Cran-McGreehin adds. “They were sitting there waiting to go. They have planning permission, they have finance, they have grid connections, they’re ready to go. And now they’re twiddling their thumbs.”

The sector repeatedly warned that the strike price was too low in light of soaring inflation. The gas crisis which started two years ago, and then was further exacerbated by Russia’s invasion of Ukraine, hit the sector hard because supply chains are so energy intensive. Indeed, Swedish energy giant Vattenfall cancelled part of its windfarm project off the coast of Norfolk earlier this year after spiralling costs meant it was no longer profitable. It had been awarded a CfD only last year, with a strike price of just £37/MWh.

Industry figures now say they require a strike price between £65-75/MWh to ensure construction costs are covered. The solution is therefore relatively simple, if the UK Government is willing to bite the bullet and increase the maximum strike price for AR6 next year.

“There’s absolutely time for the government to fix this,” says Cran-McGreehin. “You would hope that they would accept that now and they would adjust the cap accordingly and recognise that they’re going to get power that is much cheaper than other sources, even if it’s slightly more expensive because of the gas prices. So yes, we really hope they’ve learned that lesson and hopefully make that very simple change.”

Would that put 50GW by 2030 back on the table? “That is achievable if we keep going and if these auctions keep succeeding… [AR5] is a jolt, but we can recover from it. But it needs some serious engagement from the UK Government with the industry. And it’s not anything about special treatment, it is just about consistency and rules. We have the CfDs, everyone knew how they worked, everyone knew what they were, and the government just didn’t make a simple change to reflect reality.”

That failure to listen to the sector might have damaged confidence. “The industry spent the best part of a year telling the government this was a problem, and the government thought they were bluffing. The industry is clearly very frustrated. We know that some of the big developers of offshore wind are seriously considering basically, what can their commitment to the UK be if the UK is not going to be realistic about costs?”

Ashutosh Padelkar, a senior research associate at Aurora Energy Research, agrees. “Anyone could have seen this coming. And people did. The government was warned repeatedly by the industry… They had opportunities to fix it. It was something they could have seen coming, and it was a complete policy failure.”

It doesn’t help to just set ridiculous targets, you need to follow up on them

He warns that there is “absolutely no way” 50GW by 2030 will be met without the UK Government changing the strike price and resetting its relationship with the sector. “It doesn’t help to just set ridiculous targets, you need to follow up on them,” he adds.

And if the UK Government is unwilling to budge, there is no shortage of interest from countries around the world that want offshore wind developers setting up in their waters. Padelkar says: “Developers are saying, we can already do this in the US, we can already do this Germany, we can do this in other parts of the world – even Polish offshore wind is becoming a big thing. In the Philippines they have set a massive target for offshore wind. So it’s not just the developed world now, even developing countries are competing, they’re coming to the table and saying ‘we want all of this’.

“The supply chains are squeezed. We don’t have the ability in the next one or two years to rapidly ramp up the supply chains and provide all of the turbines, the steel, all of the foundations or the expertise that you need to build offshore wind. So it’s really about getting the investment; [the country that can] get the money on the table is the one that’s going to win.

“If we [the UK] just keep doing the exact same thing, then it might be the Philippines and Germany and the Baltics who win, and we lose.”

But some of the problems go beyond just the failed CfD round. Cran-McGreehin suggests the UK Government has “odd priorities” when it comes to energy more broadly. “They’ve ignored the renewables industry, refused to change one number in the auction and shattered their confidence, and failed to get the 5GW this year. On the other hand, they are giving new [oil and gas] licences, they’re giving taxpayer support around exploration and decommissioning and tax breaks and so on… The oil and gas sector is treated very well, very favourably by the government and yet it’s contributing an ever-declining amount to the economy.”

Indeed, in the King’s Speech at the start of this month the UK Government confirmed plans to award licences for new fossil fuel developments annually, in yet another sign that it is stepping away from net zero commitments.

Scottish Renewables, the industry representative body in Scotland, has warned the UK could risk forfeiting its lead on offshore wind without concerted action. In a letter to Chancellor Jeremy Hunt ahead of the autumn statement later this month, chief executive Claire Mack said: “The USA’s Inflation Reduction Act and the EU’s REPowerEU plan both have measures which are pulling critical private investments for the clean energy transition away from the UK. Timely and decisive action is therefore urgently required to create the stable policy environment essential for building long-term, international investor confidence in Scotland and the UK’s renewable energy industry.”

So what does that decisive action look like? Senior policy manager Mark Richardson elaborates. “Personally, I’ve decided to not dwell on AR5 being a failure because I think the horse has already bolted there. There’s not much you can do about something that’s already happened. It’s about looking to AR6 and forward. It’s about collaboration and action. We keep talking about collaboration by industry and stakeholders and government… It’s about a mechanism that delivers long-term for Scotland in offshore wind and the other renewable technologies. How are the allocation rounds going to deliver for the projects we need?”

We risk forfeiting our position as a world leader in renewable energy. Or we can go forward and deliver on our targets

Some of that is for the Scottish Government to consider, such as having a “well-resourced planning system” or “ensuring we’ve got the right resources and skills bodies on the ground to deliver these products”, he says. Other bits lie with the UK Government, for instance addressing the higher transmissions charges paid by electricity generators in Scotland to access the National Grid.

These key asks have not changed since the COP26 climate summit was hosted in Glasgow. Reflecting on the last two years, Richardson says: “We’ve made a lot of progress in ensuring those [asks] are delivered, working with our members, with stakeholders and government… but while we’ve made huge strides and advances, they’re still very similar issues that we’re asking about today.”

Despite some internal obstacles and increasing competition internationally, experts believe it is still possible that Scotland and the UK will continue to be a world-leader in offshore wind. Cran-McGreehin says: “You would expect that within Europe, the UK would remain almost certainly the biggest offshore wind producer in the continent… A number of European countries are trying to do some, but because of their more limited coastlines they are less likely to ever get to the UK’s potential. So in theory, we shouldn’t slip behind them.”

And the UK’s vast resource is something the rest of Europe is likely banking on too, because it means they will be able to access energy from wind which the UK exports. “Exporting at the moment is our best option because we have several gigawatts of capacity connections to the continent and to Norway, and more and more are planned. And that’s really great, because it allows countries to share resources, just the way the National Grid in a country allows you to share resources between regions,” Cran-McGreehin says.

“It’s a natural resource, just the way that you to think of coal or gas as being natural resource. This is our resource and it’s ongoing, it’s not going to deplete. And I think also a lot of European countries are expecting that we will do this, and that they will have access to some of that cheap wind.”

Richardson believes the UK is now at an important crossroads for offshore wind. “We’re at a pivot point where it could go one of two ways. We can stall [and] we risk forfeiting our position as a world leader in renewable energy. Or we can go forward and deliver on our targets.”

He’s hopeful politicians will choose the latter. “We’ve got the infrastructure, we’ve got the people, the knowledge, we’ve got a government that supports it, which again is a big advantage. I think it’s important to remember the positive work and collaboration that’s happened to date. It can be very easy to complain, to bash industry, to blame what’s happening on each other, but I think we are uniquely placed to reach our targets moving forward… The cards don’t have to be stacked against us.”