It’s Time To Evolve How The UK Procures Offshore Wind
Introducing “Mega-projects” for offshore wind will capture the maximum economic benefits of the sector, address key challenges and bolster the UK’s reputation as a policy innovation powerhouse
The UK has always been at the forefront of innovative policymaking. When the UK government introduced the Contract for Difference (CfD) in 2014 it became a world-leading model for supporting the deployment of renewables at scale, taking offshore wind from a burgeoning technology to a mature market in less than a decade.
As well as securing vital gigawatts of clean, green energy, the CfD also proved highly effective at bringing the price down rapidly year-on-year. This is to be celebrated; an apt demonstration of how government policy can mobilise private investment to provide low cost energy to consumers and create an opportunity for UK supply chain businesses.
However, while CfD auctions have been successful in ratcheting down the costs of energy from offshore wind, this incremental approach, awarding around 3-5 Gigawatts (GW) per year does not create sufficient scale to provide stable supply chain investment or an effective strategic planning backdrop. From a supply chain perspective Turbine OEMs can’t gain sufficient orders in one block to justify opening factories and scale-up businesses receive orders too late or can’t justify investments in new equipment. From a critical infrastructure perspective, strategic planning is a challenge for ports and grid when it is unclear when and where specific large deployments of offshore wind will take place with sufficient notice.
With ambitious deployment targets in place for 50GW of offshore wind by 2030, annual CfD allocation rounds alone are unlikely to deliver the full deployment that is required. With 14GW currently installed, and a recent allocation round that failed to secure any new bids for offshore wind, we must now deploy an average of 6GW per year for the rest of this decade to remain on track for Net Zero targets and secure a £100bn pipeline of projects in the process.
Against this backdrop there is a strong argument to be made for thinking bigger. Alongside the annual CfD allocation rounds, parallel “Mega-projects” could be brought in to super-charge market confidence, deployment volumes and supply chain growth.
Mega-projects could be awarded every 3-5 years for approximately 15GW of offshore wind in one go, within specified geographic deployment areas. They could unlock a wide range of benefits: for grid developments - certainty in location, and network demand; for Ports – confidence in location, contracts with users to underpin expansions (manufacturing, assembly, mustering or Operations & Maintenance); for OEM facilities – annual orders in a given region reaching the threshold of 5GW/300 turbines that triggers a requirement for new manufacturing capacity; for UK supply chain - stable backdrop for investment and runway for investment/scale up; for Science, technology and innovation – more alignment on technology challenges, more opportunities for universities and Research & Technology Organisations to partner with industry, sufficient scale to justify public/private investment in understanding and de-risking technologies and accelerating systems integration.
In short Mega-projects will create the ability to plan strategically for transformational volumes of offshore wind. The new wave of investment and job creation that comes with increased scale would be naturally drawn to our coastal communities across the country spreading economic benefit where regeneration is greatly needed. Turbine blades from Blyth, moorings from Aberdeen and cables from Pembrokeshire all suddenly become realistic future possibilities. The offshore wind sector is already forecast to support 100,000 jobs in the UK by 2030, and with Mega-projects driving investment this could be boosted further including transitioning the skills and experience from the Oil & Gas sector into long-term, green, high skill and high pay employment.
Such an undertaking would not be without its challenges. Project developers would need to work together at a scale not yet seen, forming new commercial collaborations and enduring partnerships with supply chain partners and ports. Value for money could be assured by offering a strike price in line with annual smaller CFD auctions. Uncertainty for those investing time and development money bidding into Mega-projects could be eased with the regular drumbeat of CfDs in the background acting as a safety net to catch unsuccessful bids. Mega-projects could be positioned on the East Coast, Scottish Waters and the Celtic Sea – strategically sited to unlock long-recognised potential. While there is some existing site capacity which could be pooled and leveraged to form the first Mega-projects it will also require greater coordination with the Crown Estate on leasing of sites.
The Western World is rapidly moving to a new geo-economic model, with the Inflation Reduction Act in the U.S. and Green Deal in the EU, blending Keynesian interventionist and supply-side economic approaches to bolster domestic manufacturing capabilities; the UK must find a way to respond. The beauty of Mega-projects is the limited cost to the taxpayer and maximum cost reduction for industry – “more bang for your buck” as they say across the pond. It will take significant ambition from government to take the plunge and break the consensus though, effecting an evolution in a policy platform that has stood firm for a decade. Time will tell whether the spark of policy innovation still burns brightly in the UK.
Read more on the Mega-projects concept on the ORE Catapult Website.
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