UK ‘needs better supply chain’ to reduce offshore wind cost

The UK needs a better supply chain to help reduce the cost of offshore wind electricity, which has doubled since 2005, researchers said today.

A new report by the UK Energy Research Centre (UKERC) said that a lack of manufacturing competition, planning and supply chain constraints and rising material prices had increased the capital costs of offshore farms to more than £3m per megawatt.

Costs are made higher because around 80 per cent of the value of offshore wind farms comes from overseas, leaving them particularly susceptible to the falling strength of the pound.

EU governments have created a more nurturing environment for offshore wind

Although costs rose in all sectors of the electricity industry, the report said that offshore wind had seen particular difficulties and increases had been much larger than for onshore wind.

Speaking at a press conference, report author Dr Robert Gross of Imperial College London said that costs would likely fall by 20 per cent over the next 15 years but that the industry should be cautious in its optimism.

‘We do expect costs to come down gradually and there’s a kind of tendency for all of the proponents of the various technologies to cling to their early beliefs in the face of reality,’ he said. ‘Policy needs to place firm downward pressure on costs.’

He added that other EU governments had created a more nurturing environment for the offshore wind sector, leaving the UK a decade behind its neighbours in its renewables capability.

‘There’s more of a general culture of collaboration with industry and working with the engineering sector that’s been absent in the UK for the past two decades,’ he told The Engineer. ‘Their absolute levels of financing for R&D [research and development] are higher as well. These have grown in the UK under Labour but are still small under the scale of the challenge.’

Competition among turbine manufacturers was hampered by the relatively small demand for offshore wind from Britain, said Gross, noting that the exit of Danish company Vestas had left Siemens as the only company in the market for a considerable amount of time.

Although higher levels of state funding were a very big ask in the current economic climate, the investment required to reach government aims for offshore wind were beyond the balance sheets of utility companies, he added.

In engineering terms, however, it was perfectly feasible and innovative finance schemes would be needed to encourage more businesses into the country and to fund UK innovators, according to Gross.

‘For example, the UK’s Renewables Obligation is less attractive and more risky to investors than the feed-in tariffs they have in Germany, which have given the country an early lead,’ he said.

The Renewables Obligation requires energy suppliers to source an increasing proportion of electricity from renewable sources and charges them where they fail to meet the target. Feed-in tariffs are set prices paid for electricity according to its source.

The report also noted the need for investment in the UK’s ports, calling them ‘inadequate for the task’. Gross added: ‘Ports in countries such as Germany and Denmark tend to be municipally owned rather than private such as in the UK and so they tend to operate more strategically.’

Tom Foulkes, director general of the Institution of Civil Engineers (ICE), welcomed the report, saying the sector needed ‘massive development in a relatively narrow timeframe’.

He said: ‘Government will need to provide clear leadership, ensuring the regulatory framework and fiscal mechanisms are fit for purpose and the supply chain is developed concurrently to make the UK a hub for offshore design and manufacturing.’

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