Most studies do not yet point to projects breaking even at £57.50. According to a recent review by the UK’s Offshore Wind Programme Board, so-called levelised costs for new wind projects at the point of commitment (ie not yet built, but button decisively pressed) declined by 7 per cent annually from £142/MWh in 2010-11 to just £97 in 2015-16, driven by factors such as the use of larger turbines and better siting. But while these are impressive figures even they cannot explain a further £40 drop in such a short space of time. What’s more, by far the biggest component of those costs is capital expenditure, and another study suggests that progress here is much more nuanced. A new report led by Gordon Hughes, a former professor of economics at Edinburgh University, and published by the sceptical Global Warming Policy Foundation, has analysed the reported capital costs of 86 projects across Europe. These show that while technological advances are driving down costs by 4 per cent annually, this gain is being offset as the industry moves out into deeper and more challenging waters. So, depending on where future projects are sited, there may even be no clear downward trend at all. It may be possible that the auction-winning projects have specific reasons for being able to deliver low prices. For instance, the Hornsea II project sponsored by Denmark’s Dong Energy sits next to a first farm that is also being built by the same company (at far higher rates of subsidy), offering the opportunity to share support infrastructure, as well as the link between the turbines and the grid. But it is also possible that the promoters view the CFD contract as a pretty loose commitment. “Potentially these bids could be seen as more of an option on future capacity,” said Allan Baker, Société Générale’s global head of power advisory and project finance at Bloomberg’s New Energy Finance Summit last week.
FT 24th Sept 2017 read more »
