In Great Britain, offshore winds kept the competition at bay

July 27, 2022 at 4:16 pm,
Updated on July 28, 2022 at 09:30

Reading time: 6 minutes

Saving Energy

Yves Heuillard is an engineer and journalist.

In the United Kingdom, the results of the largest call for tenders for the supply of renewable electricity were revealed on 7 July. Despite the increase in raw materials, the price offers for electricity produced by new offshore wind turbines are lower than 5.8 % in 2019 and almost 70 % compared to 2015.

The British government tender auctioned the supply of 7 gigawatts (7 billion watts) of offshore wind power [1]according to a system called CFDs (Contract for Difference, in French contract for difference). Here is the basic principle:

  • Generators make an offer to the government to supply electricity at a certain price ;
  • if the price is accepted, the government agrees to pay the difference between the market price, and the guaranteed price – if the market price is lower ;
  • but if the market price is higher, the government will collect the difference between the guaranteed price and the market price.

This type of call for tenders is very common in Europe and reveals the cost of electricity produced according to the sector. Prices tend to be the cost of production, to which the producer’s margin is added. The contracts discussed here have a duration of fifteen years and are indexed to inflation. The respective wind turbines will be operational in 2026 and 2027.

Also read: Offshore winds threaten biodiversity

The highest bidders in the tender agreed to sell electricity from offshore wind turbines – not yet built – at inflation-adjusted prices of less than £37.35 per megawatt-hour in 2012 money, or at the time of writing this article. , 53.7 euros per megawatt hour, or still 5.37 cents per kilowatt hour. Among these best bidders, the Danish Orsted for a park with a power of 2.8 gigawatts located in the North Sea, 160 kilometers from the coast of Yorkshire [2].

In seven years, the price of offshore wind electricity has been cut by more than three

This result is interesting because the price of wind turbines has increased due to the increase in the price of raw materials, to which are added the difficulties of supply and strong demand linked to the international situation. These prices are still 5.8 % down in 2019, and 69 % lower than in 2015. In seven years, the price of offshore wind electricity, despite the poor economic conditions, has been divided by more than three. The main reasons for this decrease are due to scale: larger and longer rotors increase the efficiency of wind turbines (doubling the size increases the amount of electricity generated by 4) .

We can compare this price with a similar situation experienced in France. In 2019, a group of companies around EDF Renewables won the call for tenders for the Dunkirk marine wind farm (600 megawatts) at a state-guaranteed price of 44 euros per megawatt hour and for commissioning in 2027. The comparison of calls for tender new contracts in Britain are difficult (different types of contracts, duration of twenty years, the indexation is not announced, shorter distance to the coast) but the price, praised as more competitive in time – and which remains so – the same order as British contracts today.

We can also compare the English wind power contract with the one signed by the British government EDF for the construction of two types of reactors ERP Located at Hinkley Point in Wales. It’s the same country, same contract type (contract for difference), same reference currency (pound sterling 2012). It is about the commissioning of two reactors in 2027. The contract signed in 2013 between EDF and the United Kingdom reports a price of 92.5 pounds per megawatt hour, a price indexed to inflation and – a major point – for a period of thirty-five years. In 2027, the British will therefore pay for the electricity provided by the Hinkley Point reactors 2.5 times more expensive than the wind electricity produced at sea.

It should be added that the conditions of the Hinkley Point contract have been negotiated based on the cost of the two reactors of 14 billion pounds. At the time of signing, October 21, 2013, EDF reassessed the cost to 16 billion pounds in 2012, with the commission scheduled for 2023. After many failures and slippages, EDF reported today estimated costs between 25 and 26 billion pounds 2015, and commissioning of the first unit in June 2027, with a risk of postponing delivery assessed in fifteen months assuming no epidemic wave and the additional impact of the war in Ukraine ».

On the revenue side, the contract was signed between EDF and the United Kingdom set electricity prices independently of the markets. And so these cost slippages (+60 %), operational losses, and the extension of the duration of financing due to accumulated delays must be absorbed by the company [3]. Some analysts consider that additional costs and delays cast doubt on the project’s profitability. Regardless, in Britain, offshore wind turbines are ahead of continental nuclear.

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