A windswept archipelago that bears the brunt of Atlantic storms, with a dense and growing population: Britain’s conditions are perfect for an industry with a stable future.
In addition to its natural resources, the UK’s energy economics create good market potential for renewables: high retail electricity prices, Europe-wide natural gas prices of around €15 per mmbtu, energy security concerns, an aging nuclear fleet and environmental restrictions on shale gas.
Aggressive renewable energy targets – 15% by 2020 – have ensured steady growth over the past decade. Ernst & Young’s wind indices from August this year ranks the UK in joint third place alongside the US and India, behind China and Germany.
Policy certainty has enabled the industry to steadily reach maturation, said Magnus Dale, an analyst on Europe’s wind industry at IHS Emerging Energy Research.
“The UK onshore wind market has largely reached its full potential in terms of annual additions, expected to remain at an average 500-600MW going forward,” he said.
Wind dominates the UK’s renewable sector with 6.5 GW of wind installed.
Consumers appear to be relatively well informed of the importance of wind in the UK’s renewable energy mix, according to the Vestas Global Consumer Wind Study. The survey found that 34.1% of respondents thought that wind dominated the renewables industry, followed by 25.3% who thought the same about solar, even though solar technology does not make it on to the government’s list of target technologies.
But British respondents may be surprised to learn that the UK has pioneered on offshore wind energy. Ten percent of respondents said that the UK was not pioneering the global adoption of renewable energy; while only 2.9% answered that the UK was pioneering to “a very high degree”.
Those responses will make disappointing reading for policymakers and the UK wind industry as the two largest offshore wind farms are located in the shallow waters off the North West coast, which has mitigated some technical challenges of offshore wind.
The 367 MW Walney Wind Farm became the world’s largest offshore installation when it went into service earlier this year, knocking another UK wind farm off the top slot, the 300 MW Thanet wind farm. Walney will also be usurped once the blades begin turning on the 630 MW London Array, due for completion at the end of this year.
But much more ambitious projects are in the pipeline much deeper out to sea, including an ambitious 9 GW project in the North Sea.
Government targets aim for 18GW of wind installations by 2020. But National Grid, the operator of the UK’s electricity network power balancing authority, has said that 30GW of wind power can be accommodated on the existing grid.
But there is some way to go. According to the most recent data from the wind industry’s trade association, RenewableUK, total installed capacity has reached 6,858 MW, with 4,981.78 MW onshore and 1,858.2 MW offshore.
The current Coalition government has continued the previous administration’s targets on renewables and re-stated goals to decarbonise its electric power system by 2050.
Such policy certainty for investors and utilities has been rewarded. This year’s Who’s Winning the Clean Energy Race report from The Pew Charitable Trust compiled with Bloomberg New Energy Finance ranked the UK 7th out of the G20, with $9.4 billion invested in renewables overall, 55% of that on wind.
Last year, the government published a renewable energy roadmap to reach its 15% renewable target, which could require 30% electric generation from renewable sources. The roadmap identified eight technologies that would be most suitable in Britain’s climate to achieve that 2020 target, equivalent to 234 TWh a year, with wind accounting for up to 90 TWh a year.
On launching the draft energy bill in May, the then secretary of state for energy, Chris Huhne, warned that without concerted action to reform the country’s energy system, blackouts would become a feature of daily life and would be “catastrophic” on a global scale.
Yet as we tackle these challenges, it is essential to minimise the cost to the economy, to consumer bills and to taxpayers, so we achieve these goals efficiently” – Huhne
Ed Davey, the current energy minister, has a hard task ahead of him to balance the ambition required to meet those targets while protecting consumers from high electricity retail rates from overly generous subsidies.
Although data from the Vestas Global Consumer Wind Study indicates broad public acceptance of renewables, public tolerance for onshore wind has dropped considerably.
Respondents made it very clear that they would prefer turbines at sea: 64.9% said they would prefer wind energy parks to be installed offshore in future, and only 16% said they would prefer onshore deployments.
Government, developers and investors are now looking to head out to sea, with some official figures suggesting a potential 10GW-19 GW for offshore wind by 2020.
“Investor focus has very much shifted to offshore wind in the UK as this market sees its record year in 2012,” said Dale. “In fact, as a range of utility-scale projects has been or will be commissioned this year, offshore wind installation levels will reach about 1.2 GW, surpassing those of onshore for the first time. With the unprecedented scale of the government’s ambitious programme, offshore wind will continue to drive the build-out of wind in the UK.”
Globally, onshore wind is predicted to reach grid parity with fossil fuel generation by 2016, according to Bloomberg New Energy Finance.
But as the cost curve for onshore wind reduces, offshore costs remain stubborn. The government’s Offshore Wind Cost Reduction Task Force report in June announced an ambition to reach £100/MWh. Karl John, VP Offshore at Vestas said “Vestas believes that with the successful roll out of new mega-scale turbines and a stable market framework such cost reductions are possible, but there is considerable doubt over whether the government is creating the right conditions enable it to happen”.
But developers have expressed doubts that reductions from £149 to £191/MWh in a reasonable timeframe are realistic.
However, the UK’s access to gas will continue to force innovation to reduce costs. Between 40% and 50% of electricity is generated from gas – a figure that could rise to 80% by 2030, according to National Grid.
This scenario puts UK energy security in a precarious position and natural gas prices at or above €15 per mmbtu. Resource constraints and price pressures create an opportunity for investors, developers and utilities to present wind as a hedge against volatile natural gas markets.
Britain, with its strong winds from the Atlantic Ocean and the North Sea, shallow continental shelf, aggressive renewables targets and government support, has managed to establish a mature wind industry with strong growth potential.
This piece appears on Breaking Energy as part of the Energy Transparency series in partnership with Vestas.