The UK Offshore Wind Sector Deal: A Reality Check
The UK government’s long-rumoured Offshore Wind Sector Deal, part of the Industrial Strategy, has at last been published this morning (7 March 2019).
After the delays in publication, much was expected of the Deal, and it is being reported as highly significant, with the BBC, the Financial Times, the Times and the Telegraph all remarking that it commits the UK to supplying one third of its electricity from offshore wind by 2030, from a fleet with a total capacity of about 30 GW. Both Times and Telegraph tell their readers that the government strategy will provide subsidies of £557 million per year to support this growth. The general picture presented is one of a surge in support and ambition:
Financial Times: “UK aims to draw third of electricity supplies from offshore wind”
Telegraph: "Offshore wind turbines to power past fossil fuels by 2030"
However, those familiar with the sector will immediately realise that there is something strangely familiar about these numbers. 30 GW is not that large an increment on the current state of the industry, where there is already 8 GW operational, 2.6 GW under construction, 11.5 GW awaiting construction, and 4.6 GW in the planning system, the grand total coming to about 26.6 GW (according to the government's own Renewable Energy Planning Database).
And the £557 million per year CfD subsidy figure is precisely that already available under the Treasury’s Control for Low Carbon Levies, which requires that there can be no new subsidies for renewables until the aggregate annual total of subsidies begins to fall, probably in the mid to later 2020s.
There just isn’t anything very new here, and it seems reasonable to conclude that this is a simple case of a policy re-announcement being used to suggest a dramatic new initiative when in truth there has been little or no fundamental change. There is, of course, freshly composed “mood music”, but the melodies, “partnership” with government, thousands of jobs, investment in local communities, global leadership, and so on, are not only very familiar but slight and resonantly empty jingles.
A glance at the underlying documents confirms this interpretation. The 30 GW expansion figure is not only little more than the sector currently has in mind, but is found to be “subject to costs coming down” and continuing to come down. Government’s precise wording is worth examining:
“Subject to costs coming down, this commitment could see offshore wind contributing up to 30 GW of generating capacity by 2030. In return, we expect the sector to continue cutting costs committing to lower their impact on bill payers will investing in and driving growth in the UK’s manufacturing base.”
This is, thankfully, not a dirigiste target, but a sketch of the potential that might be achieved if, and only if, cost reductions are deep and sustained, which is unlikely, and if there is a UK manufacturing base which is vanishingly unlikely. One might also reflect that the aspirations of sustained cost-reduction and UK-based manufacturing are incompatible, partly due to fiscal policies and partly to the high cost of energy resulting from climate policies. UK manufactured wind turbines will be expensive.
With regard to income support subsidies, the Deal text simply restates what was already committed, and the text even date-stamps that commitment for the avoidance of doubt. The government writes:
“Taken with the significant commitment from the government in 2018 to run regular Contracts for Difference auctions […] using up to £557m for future Contracts for Difference, this deal has the potential to further build on the UK’s position as a world leader by providing long-term certainty to business.”
This could not be more explicit, the £557m per year subsidy is not new, and it is not guaranteed to the wind industry, who will have to make their bids alongside everyone else.
The only truly novel element that can detected in the headline messages of the Deal is that government has persuaded the offshore wind industry itself to pay “up to” £250m into a new “Offshore Wind Growth Partnership” “supporting better, high-paying jobs right across the UK.”
But even this proves to be nebulous in its details. There are the usual promises to “address challenges”, to “support productivity”, to “increase competitiveness”, to “work with” business, to “promote greater collaboration", and, of course, to “drive innovation” (see p. 30–31). All this is very easy to say, but given the breadth of the ambition £250m doesn’t seem likely to go far, and whether any of that money actually arrives and in the right places remains to be seen.
It would be wrong to describe this Deal as a “damp squib” – it is far too noisy to deserve that put-down – but it is certainly little more than Public Relations, and in all probability the wind industry will be reasonably satisfied that this PR secures its market standing and gives the impression of ministerial support. The press and media coverage is ideal. But companies with a heavy dependence on offshore wind development will nonetheless be worried that even after prolonged lobbying and negotiations they have not yet secured a reversal of the Treasury’s determination to limit renewables levies on consumers.
Those consumers, on the other hand, can be truly grateful for the fact that in spite of the fanfares there is almost nothing of substance to the Offshore Wind Sector Deal. That said, bill payers should remain vigilant; there is a real possibility that these gestures of governmental support, stale and hollow though they are, may prove to be a prelude to the provision of hidden subsidies.