In 2012, the UK Government recognised the potential of offshore wind if it could rapidly bring down costs. It tasked industry with a root and branch review of how to bring down costs and set a target for the UK’s offshore wind industry to bring the Levelised Cost of Energy (LCOE) for offshore wind down by a third to £100/MWh by 2020.
This report shows that this target has been achieved four years ahead of forecast, with the latest industry data – gathered by the Offshore Renewable Energy Catapult on behalf of industry and government – showing rapidly reducing costs, and high confidence in offshore wind’s ability to go on delivering cost savings through technology innovation and continued collaboration across the sector. The findings of the report show that while we have seen cost reduction thanks to the early adoption of larger turbines, increased competition and the lower cost of capital, industry is now embracing new opportunities and the cost of offshore wind energy will continue to fall over the next decade. Cost data gathered from the sector shows that UK projects reaching Final Investment Decision (FID) in 2015/16 are achieving an average Levelised Cost of Energy (LCOE) of £97/MWh; a 32% reduction from £142/MWh for projects reaching FID in 2010/11.
- UK projects that reached FID in 2015/16 achieved LCOE of £97/MWh
- Technology developments have made the largest contribution to cost reduction
- Competition at developer level has driven down costs in the supply chain
- Risk profile and the cost of capital is reducing as confidence in the sector develops
- The level of UK content in projects is an increasingly important consideration for developers
The early achievement of the 2020 target demonstrates that offshore wind can play a significant role in the UK’s low carbon future. In 2017 the UK Government will run a 2nd Contract for Difference (CfD) auction round and has committed to further rounds with decreasing administrative strike prices to ensure cost reduction. The survey of industry has highlighted that competition between developers is playing an important role in ongoing cost reduction, with industry confident that these auctions will deliver further cost reductions from those identified in this report.
Recommendations for the OWPB
- Ensure further cost reduction beyond 2020 and maximise UK economic benefit through an agreed set of cost reduction priorities, timescales and monitoring process for collaborative actions across the sector.
- Work with government to encourage and support investment in the UK supply chain. This should be built on a coordinated approach to industrial strategy, maximising the supply chain synergies between fabrication, assembly, port infrastructure, operations and maintenance.
- Identify and exploit opportunities to reduce development, consenting and deployment risk in the UK. Consider improved coordination of government policy implementation (energy and environment) and review successful policy and regulation from other European markets that could enhance the UK framework.
- Continue to work with government via the Offshore Wind Industry Council (OWIC) on plans for further CfD auction rounds and longer term visibility of the market that would enable it to achieve its maximum potential.
Details of the findings and specific recommendations are included in the CRMF 2016 Qualitative Assessment Report and the CRMF 2016 Quantitative Report¹.
An interactive version of this report is available at http://crmfreport.com