Energy: clouds of uncertainty

By Richard North - September 18, 2023

It was quite recently that we got confirmation that that no wind developers have made bids in the government’s latest round of contracts for new offshore wind projects, effectively bringing expansion plans for the fleet to a halt.

We recorded at the time the views on how this represented a serious blow to the government’s net-zero plans – especially pertinent in view of the determination to expand EV and heat pump sales.

One would have thought, therefore, that the failure of this vital component of the government’s overall net-zero might trigger a round of frenetic activity aimed at reactivating the offshore building programme.

According to the Telegraph though, the government’s response has been anything but dynamic – so lethargic in fact that “spooked developers” are delaying non-essential work on UK projects.

At least two major companies, it seems, are pausing or slowing investment to the minimum pace necessary to keep projects alive. One describes the current position as a “holding pattern”.

After the abortive auctions, we are told that wind turbine manufacturers said they had held “positive discussions” with Claire Coutinho, the new secretary for the destruction of the economy. But days later, it was a different proposition when a meeting with Graham Stuart, the net-zero minister had him appear to play down the auction results.

Attendees, it is said, were “left bewildered”, his comments leaving them unsure whether the government was committed to addressing the issues in next year’s auction, multiple sources said.

Rather than clarity, a “cloud of uncertainty” has enveloped developers, who warn there was now little chance the UK will reach its target of 50GW of offshore wind capacity by 2030.

One executive went so far as to say: “The target is a joke now. Ministers just haven’t got it. They don’t realise how fundamentally serious the situation is”. Another was kinder about the ministers, suggesting that he believed they had grasped the scale of the problem but were failing to reassure the sector about how they would approach next year’s auction.

“Given the recent results, we need the Government to be putting its arms around the industry”, that executive said. “But I don’t think anyone is feeling the love right now. It’s bewildering”.

What executives are feeling though are the knock-on effects. The failure to secure any new offshore wind projects for the coming years is likely to exacerbate supply chain problems, creating a gap in the UK’s workflow, forcing suppliers to commit to projects elsewhere.

“If developers aren’t bringing forward projects, they’re not buying turbines, they’re not buying blades, they’re not buying all the other pieces of kit that go into an offshore wind farm, and that’s a problem for suppliers, who have to commit investment to factories”, a source says.

There is now some suggestion that developers had given up on the Tories and were now “sitting it out and waiting for the election”, anticipating a Labour whence they would see policies aimed at “turbocharging investment” in green energy.

Until then, one director acknowledged that: “we are keeping things where they are until we see where the policy landscape ends up. The government’s net-zero targets “are completely at risk and that should shock them”, adding: “The question is, why hasn’t it?”.

That indeed is a good question, and the theme is taken up by Markus Krebber, chief executive of the Essen-based energy multinational, RWE. Talking to the Financial Times, he is convinced that the UK’s failure to attract offshore wind developers in its latest renewable energy auction must be a “wake-up call” for the country.

Krebber declares that “the entire industry” had been vocal about what it saw as the insufficient support offered for offshore wind by UK. “I think the current framework has not recognised the higher inflation environment”, he says, adding a reminder that UK net-zero targets cannot be achieved without offshore wind.

To reinforce his point, Krebber draws a contrast with the government’s support for nuclear energy. “I struggle to see [why there is] a support scheme, for example, for new nuclear power at much, much higher pounds per megawatt hour than offshore wind” he says. “Offshore wind, if it is supported in the right way, is built in time. And, when you follow the news on nuclear, it is totally unclear when and at what price it will come”.

There is of course, special pleading here, as the wind industry has been massaging the figures for years relying on levelised costs as the parameter. The UK government’s 2010 analysis, however, suggests that when all costs are taken into account, nuclear comes out the better deal.

This is something that I rehearsed almost exactly a year ago and, if anything, the balance of advantage has swung further in favour of nuclear.

This special pleading is all the more evident in Krebber’s comments on the pace of change in upgrading and adapting the continent’s energy grid. Substantial extra capacity is needed to handle the changes in supply and demand that will come from phasing out fossil fuel power generation and electrifying huge swaths of transport and industry, he says.

Krebber adds that, “across all European countries that currently the bottleneck has shifted from planning and permitting to grid connection”. Yet he cites the German government as an example of good practice in offshore wind planning, with clear targets for future capacity and auctions held well in advance of those dates. The practice gave “clarity and confidence” about the grid, he says.

Far from there being “clarity and confidence”, though, expansion of the German grid is proving costly and slow, with multiple delays, going back years, while the government has yet to finalise its grid strategy.

Not least, Germany wants to produce 80 percent of its power from “green” sources by 2030, a goal that will require back-up capacity to keep the network balanced. But grid operator Amprion GmbH complains that it isn’t clear whether the fleet of new baseload gas-fired power plants will actually be in operation in time.

Nevertheless, Krebber does make some good points about the lack of manufacturing capacity for batteries, solar panels, transformers, cables and installation vessels. “If you … simply add up the buildout targets for renewables in Europe and also in the US, and you compare that to the manufacturing capacity … you realise that the current supply chain cannot deliver”, he says.

Once again, therefore, we hear the same litany repeated: “Massive investments and ramp-up of capacity” are needed, he declares, adding that: “We still have enough time to fix the problem, but we have to start now”.

Given this government’s lacklustre performance, however, an immediate response is unlikely and if the industry is waiting for a Labour government as its saviour, that is another year down the line – assuming it wins the election – and it will take time for it to finalise its own policy.

If it is any consolation, though, Krebber’s reference to US problems seem just as intractable as on this side of the Atlantic. Earlier this month, the Wall Street Journal was headlining: “America’s Wind-Farm Revolution Is Broken”, with the sub-heading telling us: “Even with generous green subsidies, offshore wind projects are being called off as developers struggle to make a profit”.

Unlike the UK which is going for 50GW, the Biden administration only wants to have 30GW of offshore wind capacity by 2030 – from less than 50 megawatts today. Generous subsidies in the Inflation Reduction Act were meant to turbocharge investment, but – as costs spiral – this is not happening.

As of two days ago, AP was reporting that offshore wind projects needed still more federal funding and planning assistance to ensure they got built. This was the view of the Democratic governors of six north-eastern states, who warned that a cornerstone of the climate change fight “could be in jeopardy”.

And this is not all. US developers are meeting the same barriers with which we are so familiar. Transmission bottlenecks to get power from offshore wind farms to land are now a major obstacle to delivering projects on time. A lack of transmission investment, along with reforms by grid operator PJM to clear a bottleneck in the country’s largest power network, are slowing grid approvals, says Reuters.

The “cloud of uncertainty” affecting British developers seems to have international dimensions. The only certainty emerging is that renewables are not going to deliver the goods.