United Kingdom

United Kingdom

UK offshore falls to £57.50 in latest CfD round

UK: Dong Energy and EDPR with Engie have secured contract for difference (CfD) deals at £57.50/MWh (€64.10/MWh) in the second auction round, as Innogy's Triton Knoll site also wins support.

London Array, the UK's current largest offshore wind farm, will be surpassed by the three newly contracted projects
London Array, the UK's current largest offshore wind farm, will be surpassed by the three newly contracted projects

Dong Energy will build 1,386MW of its Hornsea Project Two site off the east coast of England at £57.50/MWh, due to be delivered in 2022/23. It will be the largest offshore site in the world upon completion. 

EDP Renovaveis (EDPR) has also secured a contract, with minority joint venture partner Engie, to build 950MW of the Moray Offshore Wind Farm East project, located over 22km off Scotland's east coast. It will also be delivered in 2022/23. 

Innogy (formerly RWE Innogy) has also secured support to build the Triton Knoll offshore project. The site off England's east coast will be delivered a year earlier, in 2021/22. As a result, the 860MW site will be constructed at £74.75/MWh (€86/MWh). 

Unlike the other low offshore wind prices recently seen in Germany and the Netherlands, the prices in the UK auction include the cost of the transmission assets. 

The 15-year contracts are part of a second auction round to be held in the UK, in which 3,346MW of renewable or low-carbon "less-established" technologies competed to win government support.

In the UK's first auction round, awarded in 2015, two offshore wind projects, East Anglia One and Neart na Gaoithe, won support at an average of £117.14/MWh. This means offshore wind prices in the UK have halved since the first auction round in 30 months. 

Offshore wind dominated the auction; dedicated biomass with combined heat and power (CHP), and advanced conversion technology projects won the remaining capacity. 

REACTION: RenewableUK CEO Hugh McNeal said: "We knew today’s results would be impressive, but these are astounding. Today’s results mean that both onshore and offshore wind are cheaper than gas and nuclear. But this young, ambitious industry can go even further," Find more reaction to the results here.

According to the UK's department of business, energy and industrial strategy (BEIS), the total budget for contracts allocated in the auction round is forecast by National Grid at up to £176.2 million a year.

This is well below the £290 million budgeted by the government for the auction in November 2015. 

UK minister for energy and industry, Richard Harrington, said: "The offshore wind sector alone will invest £17.5bn in the UK up to 2021 and thousands of new jobs in British businesses will be created by the projects announced today.

"This government will continue to seize these opportunities as the world moves towards a low carbon future, and will set out ambitious proposals in the upcoming Clean Growth Plan," he added.

The winners of CfD deals receive a top-up from the market price to the fixed tariff price they bid (strike price), meaning they can guarantee their income. However, should the market price rise above the strike price, then the generators will be paying the difference back to the government. 

Hornsea Project Two

Dong Energy's Hornsea Project Two site was awarded government approval in August 2016. The site was due to have a capacity of up to 1.8GW.

It will be installed 89km from England's northeast coast next to the Hornsea Project One site which won an Final Investment Decision-enabling contracts for difference deal from the UK government in 2014.

Hornsea Project One will be built next year and receive £140/MWh (€153/MWh, 2011 prices) when it is completed, highlighting just how fast and far UK offshore wind prices have fallen. 

"We have always promoted size as a key driver for cost. The ideal size of an offshore wind farm is 800-1,500MW, and therefore it is natural that Hornsea Project Two will deliver record-low costs to society.

"At the same time, the low strike price demonstrates the cost saving potential of developer-built offshore grid connections, which in the UK is included in the project scope," said Dong's wind power CEO Samuel Leopold. 

Following the auction result, Dong Energy swiftly took a final investment decision on the project. 

Moray Offshore Wind Farm East

EDPR sold a 23% stake in the Moray Offshore Wind Farm zone to French developer Engie for £21 million (€18.5 million) in July 2017.

The project secured consent from the Scottish Government in March 2014 to hold over 1.1GW of capacity. 

"This auction has demonstrated the real progress in cost reduction and our result shows how affordable offshore wind can be compared to other technologies, including new thermal generation," said EDPR CEO Joao Manso Neto.

"The UK needs more low carbon generating infrastructure to maintain security of supply against an increasingly uncertain future. EDPR has demonstrated what can be done at this site. It is in the UK's interests to enable us to continue this achievement at other sites," Neto added. 

With the successful bid in the auction, it is expected Chinese firm China Three Gorges will acquire up to 30% of the project, following a deal announced in October 2015. 

The JV is also consulting on extending the zone to form the Moray Offshore Wind Farm West project, which had been constrained due to offshore oil and gas operations in the area. 

Triton Knoll

Innogy will build the 860MW Triton Knoll offshore project at a slightly higher strike price of £74.75/MWh, this is reflected in the fact it will be delivered in slightly earlier in 2021. 

Norwegian energy firm Statkraft currently owns a 50% stake in the project, acquired in February 2015. However, in December of that year, the company said it was looking to withdraw from the offshore wind sector, claiming it was 'too capital intensive'. 

Statkraft said it would continue with the Triton Knoll project until a final investment decision is made, expected now in mid-2018, before looking to sell its stake.

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