Offshore wind costs falling faster than expected

10th March 2015

The news that two offshore wind projects have been successful in the first auction for renewable power held under the Department for Energy and Climate Change's ‘Contract for Difference' (CfD) regime, coupled with the findings of a new industry report, show that costs in offshore wind are coming down faster than originally expected.

The CfD regime, established by the 2013 Energy Act, gives renewable power developers Government contracts that provide certainty on funding levels to enable a project to be developed; this is known as a "strike price", which is paid based on the total number of megawatt hours (MWh) of power produced for fifteen years of operation.

Contracts were awarded today to two offshore wind farms, one in England and one in Scotland: East Anglia Phase 1, and Neart na Gaoithe, a total of 1162 MW capacity, with strike prices of £119.89 and £114.39 per MWh, respectively.

Also announced last week, the Cost Reduction Monitoring Framework (CRMF), reveals that the cost of energy from offshore wind farms has fallen by almost 11% over the past three years, ahead of schedule on its path to delivering the UK Government's target of £100/MWh by 2020. This provides clear evidence that offshore wind can play a growing role in the UK’s sustainable energy mix in the coming decades.

The report has been delivered by the Offshore Renewable Energy (ORE) Catapult in collaboration with The Crown Estate, and commissioned by the Offshore Wind Programme Board at the request of industry leaders and government.

The report charts progress between 2011 and 2014 on cost reduction and is measured in lifetime costs for a development. The results closely mirror the competitive result achieved in the Contracts for Difference (CfD) auction results, which set 15 year strike prices for offshore projects commissioned from 2017 onwards.

Commenting on the auction results and the findings of the CRMF report, Huub den Rooijen, our Head of Offshore Wind, said: "With over 4GW in operation, 1.5GW under construction and almost 4GW with a Contract for Difference, today’s announcement marks a milestone for the offshore wind industry, which is on course to meet around ten per cent of the UK’s electricity demand by 2020".

"These announcements are clear evidence that offshore wind is on a trajectory to bring costs down below the target of £100 per MWh by 2020 and underpins the material contribution that offshore wind can make to the UK’s energy mix over the long term."

As manager of the UK seabed, we awarded agreements for lease to East Anglia ONE and Neart na Gaoithe in 2011. We invest in a range of enabling actions to encourage the development of the offshore wind sector and drive down costs, from direct activities such as environmental and technical studies, through to on-going collaboration with industry to share data and best practice.