Britain faces being left with no hope of meeting its crucial climate crisis goals and losing its status as a world leader in offshore wind energy without an urgent overhaul of government support, ministers are being warned.
The sudden halting of one of the country’s biggest offshore windfarm projects last month could signal a “tipping point” in the construction of new sites unless ministers intervene, a number of senior energy industry figures told the Observer.
They warn that a swathe of new projects, which Britain is relying on to meet key climate targets, could also become economically unviable under the existing regime. While the industry has been hit by huge price inflationary pressures, it warns that the government has failed to adjust the scheme that guarantees the price it is paid for energy.
“If the government doesn’t do something, there’s a very real risk that, come September, just before party conferences, the story won’t just be about getting rid of the ‘green crap’ – it’ll be about failing to deliver on the projects they’ve already said that they wanted,” said one industry insider.
Offshore wind developers have experienced soaring construction costs as inflation has raged. At the same time, the government has been trying to hold down electricity prices through the contract for difference (CfD) scheme designed to provide investors with certainty over new projects.
For the latest bidding round, which concludes in September, the government set a maximum price of £44 per megawatt hour based on 2012 prices – similar to the previous round that took place before many of the inflationary pressures hit.
Alarm over the mismatch has been increased by the decision of Swedish energy company Vattenfall to stop work on the multibillion-pound Norfolk Boreas windfarm, designed to power the equivalent of 1.5m British homes. It said the project was no longer profitable. Grant Shapps, the energy secretary, was confronted over the issue during a Downing Street gathering last week.
Offshore wind is key to government climate targets. It is committed to decarbonising the electricity system by 2035 and achieving net zero by 2050. It is banking on a near-quadrupling of offshore wind from about 14 gigawatts to 50 gigawatts by 2030.
Jan Matthiesen, head of offshore wind at the Carbon Trust thinktank, said: “The UK offshore wind industry is at a tipping point. The maximum prices set are now too low. Last month, we saw Vattenfall withdraw from the Norfolk Boreas windfarm. This may be the first of many if bold and swift action is not taken.”
Adam Berman, a deputy director of Energy UK, the trade association for the energy industry, said: “To put it simply, if we have any hope of reaching the ambitious targets that the government has set, we cannot afford more major projects to delay or to stop altogether.”
He added: “If we fail to put in place a financially sustainable regime, we do run the risk of underdelivering. We are running the risk of the first CfD round that might actually not procure a major offshore wind project.”
Ana Musat, executive director of policy at RenewableUK, said that even with a modest increase in the maximum price of offshore wind energy, it would still remain a cheap energy source. “It’s a perfect storm of factors changing, difficult economic circumstances and still having this really narrow focus on driving down prices,” she said.
Shapps increased the subsidy pot for new renewables projects by £22m last week in an attempt to tackle concerns.
Tom Glover, UK country chair for the energy company RWE, said the increase was “at least a step in the right direction”, but added: “It seems unlikely that the additional funding will materially change the dial on procurement volumes. Given the UK’s ambitious renewables targets, it is essential that the CfD process maximises every opportunity to deploy clean, affordable and reliable green energy.”
Officials signalled this weekend that the government could intervene. “The contracts for difference scheme, which has helped secure this huge progress in offshore wind, is designed to protect generators against price fluctuations, and compares favourably to other international schemes,” said a Department for Energy Security and Net Zero spokesperson.
They added: “The move to annual auctions was introduced in response to calls from industry and is set to bolster further investment and increase developer confidence in the sector every year. However, we understand there are supply chain pressures for the sector globally, not just in the UK, and we are listening to the sector’s concerns.”
• This article was amended on 8 August 2023 to clarify that RWE is an energy company, rather than solely a renewables company as an earlier version said.
