Supply-chain constraints, higher raw-material prices and a jump in the cost of capital will leave Britain with a larger bill for the next round of offshore wind projects, the UK Government's industry expert has warned.
Tim Pick, the country's first offshore wind champion, has told ministers not to expect a further price drop at the next auction below the £37.35 per megawatt-hour at which some operators last year agreed to sell their power.
Under the government's contracts-for-difference (CfD) regime, via which developers are paid an index-linked flat rate for the electricity they produce over 15 years, the price for offshore wind has continued to fall.
The Times says it was down 5.8% last year on the lowest bid in 2019.
However, with the fifth auction round looming, Mr Pick used his first report on the industry to say that the government should recognise that CfD strike prices for fixed-bottom offshore wind are unlikely to continue their downward trajectory.
Companies have pointed to the rising costs of steel for making the turbines, and the increasing difficulties in sourcing parts as countries crank up their investment in green energy.
Skewed the market
America's Inflation Reduction Act, dangling hundreds of billions of dollars of incentives for spending on renewables, has also skewed the market unfavourably against Britain where investors are grappling with a windfall tax.
There is a tacit acknowledgment from the government that prices are increasing, with the cap for the next offshore wind auction set at £44.
In his report, Mr Pick said offshore wind had been a "major UK success story", with 13.8 gigawatts of fixed capacity already installed, including the "world's first, second, third and fourth largest" farms. Britain has the largest fleet outside China. The UK also has a further 6.4 GW under construction and 12.6 GW with planning consent.
He warned, however, that government plans to have 50 GW by 2030 were under threat unless Britain sped up planning and dramatically improved connections to the electricity grid.
"If I had to sum up in one sentence where we stand today," he said, "I couldn't use words better than those of a European developer with investments across the UK - 'the UK is long on seabed leases, but short on timely grid connections'."
Grid constraints
Mr Pick said there was an "urgent need" to "upgrade our national grid" and that the government "should recognise that grid constraints are becoming a significant brake on wider economic activity, not just on offshore wind farms".
He added that, since the grid's privatisation in the early 1990s, Britain had built an average of "only around 50km of new transmission lines" a year, but "we are reaching the technical limits of that approach". He noted that at times offshore wind farms were paid to stop generating because the grid cannot handle "the electricity being produced".