The decision by offshore windfarm developers to boycott the UK Government’s latest support round for renewables firms underlined the threat to hopes of a boom off Scotland. However, the remedies proposed by the administration’s many critics could impose a heavy burden on energy bill payers across the UK, who are set to provide generous support for onshore wind in Scotland and the country’s faltering tidal energy industry.
The Department for Energy triggered a furore on Friday when it revealed that no offshore wind farm developers had applied for support under the fifth round of the flagship Contracts for Difference (CFD) programme for renewables firms.
The programme guarantees generators a minimum “strike” price for their output for 15 years, and is reckoned to have played a key role in encouraging firms to take on the risks of developing assets.
If market prices are below the strike prices agreed, CFD payments make up the difference. If market prices are above the strike price, generators pay over the excess.
However, while the government runs the programme, householders have shouldered the financial burden concerned. The costs have been added to energy bills, which have surged since Russia launched its full-scale invasion of Ukraine.
Against that backdrop, it was no surprise that ministers wanted developers to accept strike prices they felt were likely to limit the net costs of the programme.
Offshore wind firms, however, insisted the strike price targeted by the government did not take account of hefty cost increases in essentials such as steel and the increases in interest rates that developers have faced in recent months. They decided to snub the CFD round to teach ministers a lesson. Another round will be held next year.
Coming weeks after Vattenfall shelved plans for a giant windfarm off Norfolk citing cost increases, critics said the round had left the government’s hopes for a massive increase in offshore wind generating capacity in support of the net zero drive in tatters.
The implications for Scotland seemed particularly alarming following years in which renewables activity has failed to generate the scale of economic benefit expected.
The landmark ScotWind licensing round completed in 2022 was expected to kick-start activity. It won support from giants such as BP, which proposed to develop windfarms that they assumed would benefit from CFD support.
Days before the CFD round results were announced, Scotland’s first minister Humza Yousaf put the onus on the UK Government to help boost offshore activity. Announcing his Programme for Government, Mr Yousaf appeared to suggest Prime Minister Rishi Sunak should mimic US president Joe Biden, who is providing billions of dollars tax relief for renewables firms under the Inflation Reduction Act.
“You only need to look at the United States or to the European Union, to see the way in which ambitious government and state support for green industries is helping to create new jobs,” said Mr Yousaf.
“The inactivity of the UK Government risks us falling behind in an increasingly competitive race.”
Industry leaders in Scotland put the blame for the poor response to the CFD round from offshore developers firmly on Mr Sunak’s team.
Scottish Renewables boss Claire Mack lamented: “Industry has repeatedly warned of the cost pressures and increased challenges facing developers, but the UK Government failed to heed these warnings and is now seeing the effect of that inaction.”
ScottishPower chief executive Keith Anderson decried a “multi-billion pound lost opportunity to deliver low-cost energy for consumers” which he said was a wake up call for government.
Mr Anderson may have been influenced by the fact that Spanish-owned ScottishPower bid successfully for ScotWind acreage with Shell. The oil giant signalled recently that it had concerns about the economics of the kind of big floating windfarms that it talked about developing off Scotland.
Amid the brouhaha, it was striking however that nobody seemed to suggest that offshore windfarm developers may be being a bit greedy. The likes of Shell and ScottishPower have made huge profits following the rise in oil and gas prices in recent months. This has resulted in steep increases in householders’ energy bills.
Making the CFD regime more attractive for offshore wind generators could increase the burden on bill payers.
Consumer groups in the US reacted with concern to recent attempts by BP and Equinor to secure a reported 54 per cent increase in the price they got for power from windfarms off New York. Reuters noted a group that represented New York’s largest energy consumers estimated the increases sought could add $14.8bn (£12bn) to bills over the 30-year life of the contracts concerned.
While offshore windfarm developers sulked, the UK Government noted that renewables generators working in fields such as onshore wind and tidal energy put themselves in line to get around £0.25 billion support under the latest CFD round.
It approved bids in respect of a record 95 projects. The firms concerned must have been prepared to accept the relevant strike prices for their output.
Scotland is set to be a big beneficiary of the latest CFD round.
Some 24 onshore windfarm projects in Scotland won backing. These include SSE’s controversial Viking development in Shetland. Support was also offered for three Highlands windfarm projects led by Perth-based SSE, which is not exactly hard up.
In his Programme for Government, Mr Yousaf said he would speed up the planning process for onshore windfarms in Scotland, although residents in the areas affected may oppose developments.
Seven Scottish tidal energy projects won approval in the latest CFD round, including the Meygen scheme in the Pentland Firth.
The projects look set to get particularly generous support. The strike price agreed was £198 per megawatt hour. Onshore windfarms were offered £52.29/MWh.
Former First Minister Alex Salmond said tidal energy could help Scotland become the Saudi Arabia of the global renewables energy only to see prominent sector players such as Pelamis and Aquamarine Power fall into administration.
But the generosity shown to tidal firms appeared to receive little attention last week as offshore wind champions looked to put the squeeze on Mr Sunak.
Critics included trade body Offshore Energies UK, which has played a prominent part in the campaign against the windfall taxes imposed by the Conservative Government on oil and gas firms and electricity generators.
In its latest Economic Report, the former Oil and Gas UK said: “Although there has been fast growth in renewable sources, their overall contribution to the UK’s energy mix is only around 5%.”
Some might feel figures like that suggest the government can’t afford to leave the vital task of maximising the contribution that low-carbon renewables make to energy security in the UK to corporations.