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Change in the air for UK power

The removal of restrictions on onshore wind will reduce costs and emissions. It may even tempt the majors to diversify into the sector

The glaring omission from the UK’s renewable power success story has been the ability of onshore wind—almost certainly the cheapest form of renewable energy—to compete on a level playing field for supply contracts. That all changed in March, and the sector looks set for a renaissance.

Onshore wind had been a booming sector until the UK’s right-leaning Conservative party won a parliamentary majority in a 2015 poll, freeing them from a coalition with the centre-left Liberal Democrats. That allowed the Conservatives to pursue a not-in-my-backyard agenda favoured by the party’s rural supporters.

Planning applications were effectively subject to veto by local campaign groups and onshore wind was excluded from competitive auctions, effectively ensuring no companies would go through the costly planning process.

“We welcome the announcement that onshore wind will again be allowed to compete in next year’s auction. With the UK’s net-zero target now in place it was an obvious omission to exclude a lowcost, low carbon technology such as onshore wind,” says Clark Macfarlane, UK managing director of wind generator Siemens Gamesa.

With little new onshore capacity built in the UK of late, its competitiveness in the next auctions remains to be seen, but expectations are high. “Given experience from other countries, we expect onshore to be very competitive at the larger sites with better wind resource,” says Macfarlane.

“The wind industry has a great track record of delivering significant cost reductions year-on-year.” Reintroducing onshore wind back into the mix is going to provide “exceptional value” for the UK grid, according to Dan Shreve, head of global wind energy research at consultancy Wood Mackenzie.

“Onshore wind has made enormous strides over the last few years with respect to lowering its levelised cost of electricity and is certainly one of the most cost-effective means of renewable power.”

Value option

Given the way the UK auction system works, Macfarlane does not expect the introduction of onshore and solar back into auctions to take funding away from offshore wind. The auction results announced in 2019 demonstrated that offshore projects could be delivered at less than the expected future wholesale electricity price.

Onshore wind projects using the latest technology elsewhere in the world provide an approximation of its cost competitiveness, says Shreve.

“We expect to see developments in the US, at least those with the latest generation turbines, being able to deliver power at $25-29/ MWh. And this is unsubsidised, so it is tremendous value. Even with the very, very low gas prices that we currently have, these types of performance numbers are still outperforming combined cycle gas turbines.”

Reports suggests there are around 5GW of projects in the UK that have planning consent and are awaiting a route to market. “Our net-zero target is hugely challenging—removing the block to a proven and cheap source of low-carbon electricity has to be good news for consumers and is one of the many steps which the UK will need to take if we are to decarbonise our economy,” says Macfarlane.

“Projects will still need to demonstrate competitiveness and low costs in an auction process, so value for consumers and low-price generation of electricity should be assured.” The change may also attract the attention of larger IOCs looking to diversify and reduce their emissions profile.

The higher returns on equity associated with E&P may not be available for some time and the opportunity in UK onshore wind may be of tempting scale.

“This could be a catalyst for introducing more radical change at some of these companies. I am not expecting a full course change to their business models, but does it incentivise them to move more aggressively to enter into the onshore wind space,” says Shreve.

“We are seeing companies like Shell, Total and Norway’s Equinor that are already well engaged. They are definitely putting a priority on the energy transition, and it is going to be as a significant part of their business moving forward.”

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