For the first time in history, it is cheaper to generate energy from offshore wind farms in the UK than from new nuclear reactors.
Clean energy will be one of the cheapest ways to supply the grid, given that the cost of subsidies for new offshore wind farms has halved since the last 2015 government auction for clean energy projects.
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Two years ago, offshore wind farm projects won subsidies between £114 and £120 per megawatt hour.
The results of the most recent auction announced on Monday handed out power-purchase contracts worth £176m a year.
Energy companies including the Danish utility Dong Energy A/S, EDP Renovaveis SA and Engie SA all said they would build offshore wind farms for a subsidy of just £57.50 per megawatt hour for 2022-23.
The price of generating wind energy is significantly cheaper than the new Hinkley Point C nuclear plant, which has secured subsidies of £92.50 per megawatt hour.
The Green party said the results prove that Hinkley Point C is a misguided project.
Caroline Lucas, the party’s co-leader, said:
“While clean, green wind power has the potential to seriously cut people’s bills – the government’s undying commitment to new nuclear risks locking us into sky-high prices for years to come.”
“This is a breakthrough moment for offshore wind,” Matthew Wright, managing director for Dong in the UK said in a statement. “It will also deliver high quality jobs.”
Chris Bowden, founder of Squeaky, the UK’s only service allowing small businesses to buy renewable energy directly from generators told Verdict that wind power is the future:
“The UK needs to invest in new capacity to replace our ageing coal and nuclear plants to ensure it can meet future energy needs. The auction result again emphasises the need for a visionary approach and a commitment to end the current outdated model of inflexible power generation and move to a dynamic, devolved system, incorporating renewable energy and the use of innovative technology to balance supply and demand.”
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Ministers added that the subsidies, paid for by consumers on energy bills, would ensure 3.6m homes receive clean power while creating thousands of jobs.
Hugh McNeal, the chief executive of RenewableUK hailed the low cost of offshore wind as a welcome boost for the clean energy sector.
He told Verdict in a statement:
“We knew today’s results would be impressive, but these are astounding. Record-breaking cost reductions like the ones achieved by offshore wind are unprecedented for large energy infrastructure. Offshore wind developers have focused relentlessly on innovation, and the sector is investing £17.5bn into the UK over the next 4 years whilst saving our consumers money.”
Nuclear firms insist, however, that the UK still needs a mix of low-carbon energy, particularly when wind power is not available.
Why has the cost of wind power dropped?
Bigger turbines, higher voltage cables and lower cost foundations has helped push down the price of wind power.
Meanwhile, growth in the UK supply chain and the downturn in the oil and gas industry has also contributed to falling prices.
Developers of wind power believe that even bigger turbines mean they can achieve further cost reductions in coming years.
“Offshore wind’s success was undoubtedly buoyed by the decreasing costs of capital in the sector and the wider downward trend of subsidy levels witnessed in other European tender processes,” said Robert Marsh a partner at the law firm Norton Rose Fulbright who focuses on the energy sector.