OFFSHORE WIND INDUSTRY TO SLASH COSTS BY OVER 30% IN NEXT SEVEN YEARS

13th June 2012

Energy secretary Ed Davey, today at the Global Offshore Wind Power conference defended the wind industry in a hard hitting speech. "I believe truly cost-competitive offshore wind is less than a decade away," he said.

Davey said that Britain had gone from being the new kid in class to being the star pupil on offshore wind. He estimated that the global market for renewables at £3 trillion and growing, and advised British companies to think internationally to take a share of this market. "China aims to get 20% of its primary energy from renewable resources by 2020,"

Ed Davey said that by 2020 wind power is expected to produce 70% of the UK's power needs, according to RenewableUK. It already has 1,858 GW of offshore wind installed, more than any other country in the world. "Numbers like this should be grabbing headlines he said.

Yesterday at the conference, a new report was launched which shows how the offshore wind industry will reduce the cost of generation by over 30% to £100/MWh in the next seven years.

The minister anticipated major reductions in costs. Offshore wind currently costs £140/MWh. The reduction would save over £3bn per year. It would bring costs down to 10p/kWh by 2020. The average domestic retail power in 2011 was 12p/kWh.

"Offshore wind will be a vital part of a diverse and secure low carbon energy mix in the decades ahead. But we are clear that costs must come down."

Offshore Wind Cost Reduction Task Force Report sets out key actions for industry and Government to cut the cost of generating electricity in the sector by over 30% to £100 per megawatt hour by 2020.

Task Force report builds on the findings of new study by The Crown Estate which also concludes that reaching £100 per MWh is achievable within the next seven years.

Energy Minister affirms that offshore wind is "a vital part of the low-carbon energy mix in the decades ahead".

A new report launched today by the industry-led Offshore Wind Cost Reduction Task Force shows that the UK is on course to reduce the cost of electricity from offshore wind substantially over the next seven years.

The report builds on detailed evidence in a study by The Crown Estate, also published today, to show how reductions can be achieved, setting out specific actions to drive costs down by over 30%.

This huge cut will see the cost of delivering 18GW of electricity from offshore wind farms (around 20% of the UK's total electricity demand) drop from £140/MWh today to £100/MWh by 2020, saving over £3 billion per year. In achieving this, offshore wind will take another major step towards being fully competitive with other forms of energy generation which will make up the UK's energy mix.

The Offshore Wind Cost Reduction Task Force report lays out 28 specific recommendations on how the industry can reduce the cost of generation, covering Supply Chain, Innovation, Contracting strategies, Planning and Consenting, Finance and Grid. Within these the Task Force has highlighted that more efficient contracting and the concept of "alliancing", used successfully by the North Sea oil and gas industry to reduce risk and bring down costs, have the potential to be transformative in lowering cost and improving working practices.

In addition the Task Force has identified the development of a more robust domestic supply chain and increased competition as key area for focus.
The Task Force report also calls for industry and Government to work more closely together to address barriers as they arise. A new Programme Board is to be established to do this.

Charles Hendry, Energy Minister, said:"Offshore wind will be a vital part of a diverse and secure low carbon energy mix in the decades ahead. But we are clear that costs must come down.

"I am encouraged that this report shows that substantial cost savings can be achieved if action is taken and I welcome this valuable work. I look forward to working closely with industry to take this forward further and deliver these ambitious targets."

Fergus Ewing, the Scottish Government Energy Minister said:"I welcome the reports from the Cost Reduction Task Force and The Crown Estate Pathways Development study, which outline a realistic path to achieving a significant reduction in the cost of offshore wind, which is essential for us to maximise our offshore wind potential and reap the associated economic benefits.
"Leases have already been granted for 10GW of offshore wind developments in Scotland's waters, with companies like EDPR and Repsol committed to developing our offshore potential. In addition, international companies such as Samsung, Mitsubishi and Gamesa, based here in Scotland, are developing the next generation of turbines. Important innovative work that will ensure offshore wind is a competitive and reliable source of renewable energy for decades to come."

Andrew Jamieson, Chair of the Offshore Wind Cost Reduction Task Force, ScottishPower Renewables Policy and Innovation Director, and Chairman of RenewableUK said:"To ensure that the UK's world-leading offshore wind sector expands rapidly over this decade and fulfils its massive potential within the UK's energy mix, it is vital that costs are reduced. In doing this not only will we reduce risk and drive investment into the sector, we will further protect consumers from increasing energy costs, reduce the industry's requirement for financial support and deliver jobs and energy security for decades to come.

Having considered the evidence before us, the considerable expertise of the Task Force presents some challenging recommendations to both industry and Government but it is crucial that we all begin work immediately. In doing so I am confident that we can achieve our cost saving goal and create huge economic opportunities for the UK in both the domestic and international energy markets".

Leading figures in the sector highlighted the importance of the two reports.
Maria McCaffery, Chief Executive, RenewableUK, said:"By committing to slash the costs of developing offshore wind the UK has once again demonstrated why it is the world leader in this industry. RenewableUK is ready to play its part to encourage the industry to follow the recommendations in the report.

As a further boost to this position and to drive the economic opportunities it is creating for UK companies, we have today launched the Offshore Wind Project Timelines document. This will bring greater clarity on the timings of offshore wind developments and enable suppliers to see in greater detail when and where investments should be made. Through this and the other actions recommended by the Task Force report, the sector will become more cost competitive and will play an increasing important role in meeting the UK's energy demands, as well as underpinning crucial economic growth."

Benj Sykes, Director of UK Wind Operations, DONG Energy, commented:"The report from the Task Force shows we are now seeing good progress in identifying ways to reduce the cost of offshore wind. As an active member of the group we believe it's vital that industry and government have the chance to sit down together and devise these sorts of solutions to get us to the £100 per MWh target. The timeline is tough so the industry must now work on implementing the ideas in this report".

Andy Kinsella, Director and Chief Executive Officer - Offshore, Mainstream Renewable Power said:"Mainstream Renewable Power is entirely committed to driving down the cost of energy and we believe £100 per megawatt hour for offshore wind is fully achievable. This has always been one of our primary goals and Mainstream is leading a number of innovative activities which will contribute to this such as the "twisted jacket" foundation installed in the Hornsea zone, securing framework contracts with major suppliers, greater interconnection through the Supergrid and working with suppliers at early development stages. These are practical measures we're already taking to make £100 per megawatt hour a reality".

Jim Smith, Managing Director of Renewables, SSE, said: "It is essential that the UK continues to cut its carbon emissions, but this must be done at the best value for money. As the UK's leading generator of renewable energy and a major investor in offshore wind, SSE welcomes the findings of these reports and will continue to work closely with all participants to reduce the costs of offshore wind by the end of the decade."

Rob Hastings, Energy & Infrastructure Portfolio Director of The Crown Estate said: "We believe that there is no single solution to reduce the cost of offshore wind and all participants in the sector need to play their part. We've facilitated the production of this authoritative Pathways Study which identifies a highly credible way forward for industry and government to create a commercially sustainable offshore wind industry providing both environmental and social benefit. We welcome the industry-led Cost Reduction Task Force report, set up by DECC, who have applied the evidence of the study. The Crown Estate looks forward to working with the programme board, industry and Government on delivering the action plan as set out in the Task Force report."