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Offshore wind: industry concerned over sharp increase in capital costs

The British Wind Energy Association (BWEA) today expressed concern over a “sharp increase” in capital costs that makes economic viability now a major barrier to deployment for offshore wind projects.

The BWEA said that project roll-out in the UK has gathered pace with offshore wind build in 2009 expected to be similar to onshore wind build for the first time.

“But this progress has been accompanied by a sharp increase in capital costs which is a concern for continuation of that success story, with economic viability now a major barrier to deployment for offshore wind projects,” it said. The views were expressed in a report UK Offshore Wind: Charting the Right Course, released to coincide with the trade association’s annual conference in London.

“Consulting key industry players (developers and contractors) gives a picture of current capital costs lying in a
range centred on £3.1m per megawatt of capacity installed (for those projects recently contracted and likely to be
contracted shortly). The consensus on future trends is for a slight rise in the next two years followed by a slight fall from current levels to 2015.

“As one expects in such a consultation exercise, dramatic changes are not foreseen and most consultees assume ‘environmental’ factors will persist at current levels. There was wide acknowledgement that capital cost
reduction was needed for a healthy long term industry.”

A second report, UK Offshore Wind: Staying On Track identifies a catalogue of problems holding back the UK’s progress in developing offshore wind power and says that the “level of annual installation [of wind turbines] will remain inadequate to bring the industry to maturity … and provides limited potential for inward investment in UK facilities”.

The report shows that against the BWEA’s 2007 forecast, the forecast delivery rate through to 2012 has held firm - due in no small part to the 2009 Budget proposals keeping a significant number of projects on track.

But after 2012, the current forecast falls away from the 2007 forecast by up to 800MW in 2015 because of the drop
in installation rate.

From discussions with developers, the drop in installation rate appears to be a result of three factors: future rounds coming into play later than previously expected; round 2 delivery having a longer ‘tail’ than previously foreseen with
BWEA’s projections having around 1.5GW of Round 2 capacity remaining to be built after 2015; and project rated power not reaching nominal levels, with Round 2 falling around 1GW short of the nominal figures announced in the Crown Estate leasing process.

Green Party leader Caroline Lucas said today: “It’s appalling that the UK government would allow the situation to be so shockingly bad. According to the UN, the impacts of climate change are already killing 300,000 people a year and rising, as well as causing $125bn worth of economic damage every year. The wind industry is one of the main tools for tackling climate change, and Britain is a major player.

“So we need urgent government commitment and serious government funding to make sure Britain’s wind industry can reach its full potential in helping tackle climate change.”

“The offshore wind business remains at the mercy of the economic climate, the value of sterling and the pressure put upon it by on shore wind demand.”

Lucas said today that the industry’s problems could be solved “if only the government would accept responsibility for making sure things happen that urgently need to happen, instead of using market forces as an excuse for the failure of policy.”

The problem of a weak pound, she said, underlines the need for the UK to develop its own manufacturing base.

And she promised that the Green Party will fight the coming general election partly on a promise of bringing massive investment into the wind energy sector through a combination of incentives and direct funding, to make the UK the world leader in wind energy and create literally hundreds of thousands of jobs.

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