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UK offshore wind CfD hits new low at GBP57.50/MWh for Hornsea 2, Moray

Highlights


Half the strike price of first CfD round in 2015

Triton Knoll project awarded Eur74.75/MWh CfD

Cheaper than new nuclear, levelized cost of new gas

Brussels — The UK government Monday awarded contracts for difference with a strike price of just GBP57.50/MWh ($75.87/MWh) -- the lowest ever price for UK offshore wind -- to both the 1.4 GW Hornsea Project 2 and the 950 MW Moray East offshore wind projects.

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The 860 MW Triton Knoll offshore wind project won a CfD with a strike price of GBP74.75/MWh in this second round of CfD allocations.

Compared to round one, held February 2015, round two offshore wind awards represent a 38% cost reduction for delivery year 2021/22 (Triton Knoll) and a 50% reduction for 2022/23 (Hornsea Project 2, Moray).

Round one CfDs for offshore wind saw contracts awarded at GBP119.89/MWh for capacity to be delivered in 2017/18, and GBP114.39/MWh for 2018/19.



As costs fall, so the subsidies go further, with 56% more capacity allocated in round two, using 44% less budget than in CfD round one.

Round one saw an estimated GBP315.25 million awarded for a total 2.1 GW. Round two has seen GBP176.18 million awarded for 3.3 GW.

The round two offshore wind prices are lower than the cost of the 35-year contract awarded for the new Hinkley Point C nuclear power project at GBP92.50/MWh, and the UK government's forecast levelized cost of gas in 2020 of GBP66/MWh, Renewable UK, the UK wind, wave and tidal energy industry's trade body, said Monday.

The offshore wind strike prices are guaranteed for 15 years, indexed for inflation, and the projects have a 25-year expected lifespan.

DONG Energy, which is developing Hornsea 2 off the Yorkshire coast in northeast England, said Monday that the ideal size for an offshore wind farm is 800-1,500 MW and that this helped drive down costs.

"The low strike price [also] demonstrates the cost saving potential of develop-built offshore grid connections, which in the UK is included in the project scope," it said.

Hornsea 2 is to "contribute significantly" to DONG Energy's goal to have 11-12 GW installed offshore wind capacity by 2025.

Innogy and Statkraft, which are developing Triton Knoll off the Lincolnshire coast in eastern England, said that the costs of offshore wind are falling faster than the UK government predicted.

The Department for Business, Industry and Industrial Strategy said in November 2016 that the levelized cost of offshore wind was already below the GBP106/MWh expected by 2020, and was expected to fall to GBP96/MWh by 2030.

BEIS also forecast that newbuild gas could cost GBP66/MWh in 2020, rising to GBP99/MWh by 2030.

But it included a caveat that these levelized costs "are not the sole determinant of strike prices and therefore should not be seen as a guide to potential future strike prices."

The CfD pays the generator the difference between the strike price and a reference price -- a measure of the average market price for electricity in the British market.

In Platts Analytics' Long Term Price Pilot for the UK market, published spring 2017, UK wholesale power prices are forecast to increase steeply year-on-year between 2022 and 2026, with the first quarter price rising from GBP42.2/MWh in 2022-2022 to GBP55.7/MWh in 2026.

--Siobhan Hall, siobhan.hall@spglobal.com
--Henry Edwardes-Evans, henry.edwardes-evans@spglobal.com
--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com