Vattenfall secures landmark contract, as major new report suggests 60GW of 'subsidy-free' renewables could come online by 2030
The offshore wind industry celebrated another milestone yesterday, after the Dutch government confirmed plans for a 700MW project in the North Sea that will be built under 'subsidy-free' terms.
Swedish utility Vattenfall beat Statoil and Innogy in an auction process for the right to develop two 350MW zones known as Hollandse Kust I and II. Under the rules of the auction, the Dutch government only accepted bids that could undercut wholesale power prices, effectively making the resulting price support contracts 'subsidy-free'.
The news comes in the same week as a major new report from Aurora Energy Research detailed how plummeting renewables costs mean up to €180bn of investment in renewables projects could be mobilised by 2030, including €64bn in 'subsidy-free' projects that could deliver up to 18GW of new capacity at negligible subsidy cost to governments and billpayers.
The Hollande Kust projects, which are expected to provide enough power for one million Dutch homes, will now be developed by Nuon, Vattenfall's Dutch subsidiary. They are scheduled to come online by 2022.
"Thanks to drastically lower costs, offshore wind farms are now being constructed without subsidy," said Minister of Economic Affairs Eric Wiebes. "Innovation and competition are making sustainable energy cheaper and cheaper, and much faster than expected, too."
His comments were echoed by Gunnar Groebler, senior vice president business area wind at Vattenfall. "Winning the bid for Hollandse Kust Zuid is a result of our continuous cost reduction efforts along our entire value chain and the solid track record and portfolio approach of our company," he said. "We are very happy to enlarge our contribution in making the Dutch energy system more sustainable and support our customers, large and small, on their way to become climate smarter."
The company added that it would now make the final preparations for the project, including the design of the wind farm, continuation of the internal planning, and finalizing the tender process for major components.
The 'subsidy-free' bid further underlines the rapid cost reductions that have been seen across the offshore wind industry in recent years. It is the third of five tenders planned by the Dutch government with each auction round having seen bids fall as developers have responded to falling technology and project costs across the sector. Hopes are now rising that further subsidy-free projects can be confirmed through the final tender rounds, as the Dutch government pursues its goal of deliver 3.5GW of new offshore wind capacity by 2023.
Industry experts stressed the results are not immediately comparable with the UK, as under the Dutch system the government covers the cost of grid connections. However, after the latest round of UK renewables auctions last autumn saw bids from offshore developers fall 50 per cent over the past four years, hopes are growing that further cost reductions are in the pipeline across the North Sea.
Today, the Offshore Wind Industry Council launched a new 2030 Vision for the sector, launched a new 2030 Vision for the sector, detailing how it could mobilise £48bn investment in UK infrastructure; deliver a five-fold increase in export value to £2.6bn a year; support 27,000 skilled jobs; and cut total electricity system costs by £2.4bn a year by the end of the next decade.
The group also announced that Baroness Brown of Cambridge has been appointed as the new Sector Champion for Offshore Wind, and will head up the industry's engagement with government which is currently focused on securing an effective Sector Deal for manufacturers, developers, and supply chain firms.
"The challenge for the offshore wind industry and government is to ensure that we capitalise on our world-leading position in a highly competitive, global market and deliver on the huge potential for jobs, new infrastructure, exports and economic growth," said Baroness Brown. "This will also allow us to continue to achieve significant cost reductions, helping energy consumers. With an ambitious Sector Deal, we have the opportunity to take the next transformative steps together, enabling the offshore wind industry to help government to achieve its clean growth ambitions in a way that boosts productivity and growth throughout the UK."
The latest developments come as Aurora Energy Research published a new report to coincide with its annual Spring Summit in Oxford, which argues 'subsidy-free' renewables are no longer a pipe dream for policymakers and industry.
The report looks at industry trends in the UK, Germany, France, Ireland, the Netherlands, and Belgium, and calculates that 'subsidy-free' renewables are already investable in many parts of Europe and are "on the cusp of a breakthrough in Britain".
Industry insiders have long argued that if they were allowed to compete for price support contracts new onshore wind and solar projects in the UK would be either close to, or even undercutting, wholesale power prices.
Aurora argues cost reductions across much of the renewables sector are set to continue over the coming decade, curbing costs for energy consumers and posing a significant challenge to owners of baseload thermal power plants, while also providing a boost to operators of flexible grid services.
"Back in 2010 at the start of the Electricity Market Reform process in Great Britain, few would have imagined that by 2018 we would be talking about a subsidy-free future for renewables," said Aurora's Mateusz Wronski. "Yet, this is where we have arrived, and our research highlights clearly the enormous prize and potential in the market, not only in Great Britain but across Europe. This will be a true game changer for the energy industry and policy makers, with a knock-on effect on baseload technologies as well as flexible generation."
This knock-on effect is already being felt, as evidenced by the clean energy transition plans being adopted by a raft of utilities and engineering giants around the world. Following hot on the heels of the major shake-up caused by E.ON and RWE's proposed asset transfers and Statoil's decision to ditch its oil-based moniker, the FT reported this week that engineering giant GE is stepping up its investment in offshore wind power at the same time as cutting 12,000 jobs from its thermal power divisions. "The conventional wisdom, three, four years ago at GE was thermal power [will] keep growing and offshore wind is a fantasy," Jérôme Pécresse, chief executive of GE Renewable Power, was quoted as saying. "Now offshore wind is not a fantasy, it's a market. And GE can positively adapt and invest into it."
Aurora co-founder and CEO John Feddersen told the audience at the energy research firm's annual forum this morning that "in terms of subsidy-free renewables, we are at the tip of a very large iceberg". The latest evidence from the Netherlands, not to mention the bold ambitions of the UK's offshore wind industry and the changing strategies adopted by the world's largest energy firms, suggests he is almost certainly right.
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