Indian farmers are facing a “perfect storm,” the British boss of a major energy company has said ahead of a major announcement that could deal a blow to the country’s renewable energy aspirations.
Companies will find out on Friday whether they will win new contracts to build huge wind and solar farms across the country.
But industry observers fear few firms have applied for a contract to build the offshore wind farms so necessary to meet the government’s goal of decarbonizing the country’s electricity supply by 2035.
The UK boss of Vattenfall, a major builder of offshore wind farms, told the PA news agency that the sector was facing rising prices and tight supply chains.
Unfortunately, the world has changed in the last year or two
“We are in a perfect storm and facing a very, very difficult macroeconomic climate,” said Lisa Christie.
“And unfortunately the state funding framework for offshore wind energy simply hasn’t kept up.”
Each year the government awards contracts to supply UK households with renewable electricity for 15 years at a set price.
By guaranteeing the price a company receives for its electricity, it gives companies the assurance that they will not go bankrupt if electricity prices plummet. It also helps keep household bills lower than they otherwise would be when electricity prices rise.
The scheme has helped drive down renewable electricity prices in recent years and will provide thousands of new wind turbines and solar panels, producing green electricity for the UK.
When companies bid for these contracts, those that indicate they can supply the electricity at the cheapest price are chosen. But there is also a maximum amount that these companies can offer.
This year, offshore wind producers were allowed to offer a maximum of £44 per megawatt hour (MWh) of electricity. In 2015, when the first auction started, the maximum allowable bid was £155 per MWh. These figures are adjusted for inflation to 2012 prices.
There are now major concerns that companies will not believe they can cover their rising costs at just £44 per MWh and have therefore not submitted many bids, if any.
Last month, Swedish group Vattenfall announced that it had suspended construction of one of its wind farms off the Norfolk coast. It had promised to provide electricity from the site at £37.35 per MWh.
The company said the cost of building an offshore wind farm has increased by 40% for much of the industry.
Ms Christie, the country manager for the UK, said the system – known as Contracts for Difference (CfD) – has worked well so far, but over the last year the climate has changed.
“The CfD mechanism has worked really well so far, which is why the UK is a world leader in offshore wind, coupled with the fact that we in the UK have excellent offshore wind resources and lots of experience and expertise,” she said.
“But unfortunately the world has changed in the last year or two.
“We had a war in Ukraine and experienced huge supply chain shortages around the world. We’ve seen our cost of capital go up like everyone else and we’ve seen the cost of raw materials go up.”
The warnings are not new. In May, trade body EnergyUK said this year’s auction will “fall well short of the offshore wind expansion needed to meet the UK government’s target” of building 50 gigawatts of offshore wind capacity by 2030.
The results of the fifth round of the contract for difference auction are expected to be announced on Friday, although a release date has not yet been confirmed.
https://www.standard.co.uk/business/business-news/wind-farm-builders-face-perfect-storm-ahead-of-key-announcement-b1105638.html Wind farm builders face “perfect storm” ahead of important announcement.