New reports from wind industry "indicate failure of market-led approach," say Greens

24 June 2009

Two new reports to be presented at the British Wind Energy Association's Offshore 09 conference today will indicate severe problems facing the offshore wind industry - problems which the Green Party says are "attributable to a fundamentally inadequate approach by the Labour government."

One report (1) says that while the UK is now "the largest global market for offshore wind" there has been "a sharp increase in capital costs" which mean "economic viability [is] now a major barrier to deployment of offshore wind projects" around Britain's coasts.

The second report (2) identifies a catalogue of problems holding back the UK's progress in developing offshore windpower:

  • Planning delays
  • Developer resource limits
  • Waiting for transmission grid upgrades
  • Weak economics
  • Construction delays
  • Shortage of wind turbines
  • Grid access and limitations
  • Reaching financial hurdle rates
  • Availability of capital
  • Cumbersome and unproven OFTO regime
  • Consenting compromises on site area and capacity.

Development "being held back by market dogma and lack of government support"

The report warns that: "Although offshore wind will be a much more substantial market in the next 5 years than it was in the past 5 years, the absolute level of annual installation will remain inadequate to bring the industry to maturity (in terms of contractor competition) and provides limited potential for inward investment in UK facilities."

A Green Party spokesperson commented today: "It's appalling that the UK government would allow the situation to be so shockingly bad. According to the UN, climate change is already killing 300,000 people a year and rising (3). The wind industry is one of the main tools for tackling climate change, and Britain is supposedly a major player."


Barriers to progress that Green Party policies could easily remove

The BWEA says that one of the problems facing the offshore wind industry is competition from the onshore wind industry for common components (4). The Greens argue that government incentives and direct investment would ensure production facilities were adequate to supply both.

The BWEA also points to the problem caused by the collapse in the value of sterling (5). The Greens say this underlines the need for the UK to become far more self-reliant in manufacturing wind turbines for the British market. The Greens have recently blamed lack of government action for the closure of England's only wind turbine factory.


Progress is "at the mercy of market forces"

The BWEA says: "The offshore wind business remains at the mercy of the economic climate, the value of sterling and the pressure put upon it by onshore wind demand." (1)

But the Greens say the industry's problems could be solved "if only the government would accept responsibility for making sure things happen that urgently need to happen, instead of using market forces as an excuse for the failure of policy."

 

Industry consultation shows need for greater scale to cut costs

The BWEA's new reports were based on a wide consultation within the industry. "There was wide acknowledgement that capital cost reduction was needed for a healthy longterm industry," the BWEA said. But investor confidence remains too low to allow the industry to reach its potential (6).

Lack of government investment, say the Greens, has resulted in a situation where action is needed urgently - but even action taken now would not deliver immediate results: " ... even if effective action is taken by Government and industry now, the benefits are not likely to have a deflationary impact on capital costs until 4-6 years from now due to the substantial lead time required to establish new facilities."

 

The way forward - greater investment by a Green government would mean lower costs for the industry

However, says the BWEA, action taken to increase supply chain confidence will result in reduced costs in the industry from 5 years from now: "Supply chain confidence is seen as a key factor in future costs and one which can be influenced by policy-makers and developers. In an otherwise neutral environment, projections show that good progress on this front will see capital costs reduced by 15-20% in 5 years time and on a strongly-reducing trajectory."

The Green Party will fight the coming general election partly on a promise of bringing massive investment into the wind energy sector through a combination of incentives and direct funding, to make the UK the world leader in wind energy and create literally hundreds of thousands of jobs.


Notes for Editors:

1. UK Offshore Wind: Charting the Right Course. Scenarios for offshore capital costs for the next five years, BWEA, 24 June 2009.
2. UK Offshore Wind: Staying On Track. Forecasting offshire wind build for the next five years, BWEA, 24 June 2009.
3. See: http://www.guardian.co.uk/environment/2009/may/29/1
4. Charting the Right Course says: "A review of the historical offshore wind capital costs reveals several important influences that have been an upward spiralling trend from around 2005, which followed a period of relative stability from 2000 to 2004. Most important amongst these are those factors that have served to reduce supply chain competition, namely, the ongoing withdrawal of key contractors and products in combination with increasing demand pressure from industries competing for common supply capacity, in particular onshore wind. To reverse the upward capital cost trend in the long-term, a reversal in supply chain trends is important."
5. Charting the Right Course says: "More recently, currency and commodity markets have played an important role. Over 80% of UK offshore wind project capital value is imported, so the devaluation of sterling since 2007 has forced prices sharply up." ... "...since mid-2007 the precipitous decline in the value of sterling against the euro has had a direct impact on capital costs for UK projects, in the order of 15-20%."
6. Charting the Right Course says: "The offshore wind supply chain is maturing slowly and the extent to which confidence can develop or be accelerated has a substantial impact on overall capital costs with a 5-year horizon, or more importantly, the trajectory which capital costs will be following by 2015. If sufficient confidence is instilled for incumbent and new-entrant suppliers and contractors, a dedicated supply chain could be created for offshore wind for the first time."

 

 






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