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Costs of Offshore Wind Farms

On the 3rd of February the Sunday Telegraph published an article about the costs of Round 3 offshore wind, and used cost estimates generated by REF: "Foreign Firms' '£100bn wind farm subsidies'" 

The Department of Energy & Climate Change was quoted as saying that our figures were "based on pure speculation". This is untrue, and we have written to the Rt Hon Ed Davey, Secretary of State at the department to point this out. Here is our letter.

The Rt Hon Edward Davey MP

Secretary of State for Energy & Climate Change
1 Whitehall Place
London
SW1A 2AW
4 February 2013


Dear Mr Davey:

In yesterday’s Sunday Telegraph story (03.12.13, “Foreign firms’ ‘£100bn wind farm subsidies’”) your department is quoted as describing our calculations of the future subsidy income for the Round 3 Offshore wind projects as being “based on pure speculation”.

This is incorrect. They are straightforward and rational estimates based on known facts and probabilities.

Specifically, the Sunday Telegraph asked for the likely consumer subsidy levels necessary to support the Round 3 offshore wind farms. From information in the public domain on the websites of the Infrastructure Planning Commission, the Crown Estate and relevant developers, we estimated that the proposed Round 3 wind farms totalled approximately 26 GW, with capacity breakdown as follows:

<span ">Round 3 Wind Farm

<span ">Capacity

<span ">Atlantic Array (Bristol Channel)

1.3 GW

<span ">Dogger Bank Creyke Beck

<span "> 2.4 GW

<span ">Dogger Bank Teesside

<span "> 4.8 GW

<span ">East Anglia One, Two, Three and Four

<span "> 4.8 GW

<span ">Firth of Forth 1, 2, 3

<span "> 3.7 GW

<span ">Hornsea 1, 2

<span "> 3.3 GW

<span ">Moray Firth

<span "> 1.6 GW

<span ">Navitus Bay

<span "> 1.2 GW

<span ">Rampion (Southern Array)

<span "> 0.7 GW

<span ">Rhiannon Irish Sea

<span "> 2.2 GW

<span ">Total

<span ">26 GW


Offshore wind farm load factors prepared for DECC – by Arup, for example – assume load factors in the region of 37%. On the basis of our data we believe that this is overly optimistic and in the calculations for the Sunday Telegraph we assumed offshore wind farm load factors of 30%. This more conservative estimate suggests that our cost calculations could be towards the lower end of the likely range.

We also assumed that the subsidy level for Round 3 would be on a par with that proposed for 2017 namely, 1.8 ROCs per MWh and that the value of the RO and LEC support would not drop below £50.

The subsidy level can therefore be estimated by the simple calculation:
26,000 MW x 8760 hours/year x 0.3 (load factor) x 1.8 ROCs per MWh x £50 per ROC & LEC = £6 billion per year.

The subsidy levels do not include that necessary to support Rounds 1 and 2 wind farms, those in Scottish Territorial Waters, or demonstration offshore wind farms. We estimate that these would add a further £3 billion per year to the figures quoted by the Sunday Telegraph.

DECC’s spokesperson observed that “We are clear that costs must come down and we are working with industry to reduce the cost of offshore wind by around a third by 2020.” This, we submit, is a very clear case of “pure speculation”. You may wish the costs to come down, but there is no reason to think that they “must”. Indeed, as you will be aware, there is emerging evidence to suggest that the industry, both on- and off-shore, has overstated the lifetime of its plant and, or, understated Operation & Maintenance costs. This suggests that even higher subsidies will be required to lure capital into this sector. In other words, future costs may even rise, especially as wind farms are built in deeper waters.

In this state of uncertainty, we believe that it is obviously rational and prudent to assume that the costs of offshore wind remain stable at current levels. This gives a reasonable baseline value for the cost of the R3 wind farms, as published in the Sunday Telegraph.

The response of the department’s spokesperson seeks to suggest that REF’s calculations have no basis in fact, whereas the truth is that they are very much more factual than the suggestion that costs will fall. As a response to criticism in the press DECC’s remarks are evasive and in effect dishonest. It is the department’s beliefs with regard to future cost reductions that require defence and explanation, not our straightforward and moderate estimates.

Perhaps most crucially, if DECC intends subsidies to offshore wind to be cut in the future, then this fact should be made crystal clear, so that investors can plan accordingly, and the public can evaluate government’s attempts to protect the consumer interest.


Yours sincerely,


John Constable,
Director.

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