Offshore Wind Sector Deal: March 2019
Offshore Wind Sector Deal: March 2019
Government backs offshore wind sector, but doubts remain over new jobs and inward investment due to Brexit uncertainty.
- Sector deal includes aim of 30GW of offshore wind by 2030, thereby providing about 1/3 of Britain’s electricity;
- Ambition to create 20,000 new skilled jobs in the sector and to more than double the number of women entering the industry by 2030;
- Industry to invest £250 million to develop the UK supply chain;
- Global exports could increase fivefold to £2.6 billion per year by 2030;
- Offshore wind expected to be effectively ‘subsidy-free’ by second half of the 2020s; and
- Deal will mean there will be more electricity from renewables than fossil fuels, with 70% of British electricity predicted to be from low carbon sources by 2030.
The long-awaited offshore wind sector deal was published on 7 March. It confirms the UK’s aim to achieve 30GW of offshore wind by 2030, up from 8GW today (see chart 1). This would mean about 1/3 of Britain’s electricity would come from offshore wind by 2030; with all renewables making up over half of overall generation by that time. Adding in nuclear’s share, means that low carbon sources would be providing more than 2/3 of Britain’s power needs by 2030.
This increase in deployment will be delivered through further auction rounds for ‘Contracts for Difference’ (CfDs), which have helped deliver dramatic reductions in the costs of offshore wind over the past 5 years (chart 2). The next CfD round is due to commence in May 2019 and the deal reiterates the intention to hold auctions every two years, with the aim of deploying 1-2GW in each year in the 2020s. In order to open up new areas of seabed for deployment, the Crown Estate is expected to launch its fourth leasing round soon, which aims to deliver scope for up to 7GW of deployment by 2030.
With only £60 million of subsidy available in the forthcoming auction round and the auction ‘cap’ price set at £53/MWh for delivery in 2024/25, the UK is edging ever closer to having ‘subsidy-free’ offshore wind deployment. The sector deal highlights the aim of offshore wind deployment being ‘subsidy free’ by 2030.
In return for this continued policy support, the sector has agreed to a target of 60% UK content by 2030; and seeks to triple highly-skilled jobs to 27,000, through a new skills package for offshore wind employees; as well as to achieve at least 33% women in the total offshore wind workforce by 2030, with a longer term target of 40%.
The industry has also committed to boost innovation funding, through a new £250 million Offshore Wind Growth Partnership, to help develop the UK supply chain further.
The Government hopes to increase exports from the sector to £2.6 billion per year by 2030. Success here will be dependent on the pace of development of offshore wind in other countries, including the US, Taiwan and China. The deal also commits £4 million for British businesses to share expertise globally through a new technical assistance fund.
Since the negotiations on the sector deal commenced over a year ago, we have seen dramatic developments in the wider power market outlook for the GB market. The Government’s plans for new nuclear have stalled, with the exit of Toshiba and Hitachi. Coal and gas have been hit by the suspension of the Capacity Market arising from the recent ECJ ruling. Plans for new interconnectors have to cope with the uncertainty about Britain’s future trading arrangements with Europe.
So the UK may now need all of the 30GW of offshore wind promised in the sector deal announced today. Some of that will be ‘subsidy free’ which reflects on the remarkable success in reducing the costs of offshore wind in recent years.
While the offshore wind sector enjoys firm policy backing from all the main political parties, it remains to be seen whether the UK can secure significant new jobs and inward investment in the UK, given the headwinds and uncertainty created by Brexit.
Simon Virley CB FEI, Partner and Head of Energy and Natural Resources, KPMG in the UK.
Bridget Beals, Director, Power & Utilities, KPMG in the UK.
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