Over the past year, offshore wind has faced unprecedented headwinds. The impact of inflation and supply chain pressures led to the first allocation round in the history of the Contracts for Difference scheme in which no bids for offshore wind were forthcoming at all. The UK government response, where DESNZ increased the ceiling for payments in the 2024 auction of renewable electricity generation, has been widely welcomed and suggests a high level of renewed confidence in offshore wind as the backbone of our energy sector. However, this only serves to address part of the challenge for the sector.
Despite the success of the CfD mechanism at accelerating deployment and simultaneously bringing down prices, the UK has failed to secure much of the economic benefit of the boom in offshore wind. Supply chains have been squeezed in the drive for cost-reduction and our infrastructure has lacked investment, both facing issues with access to finance due to the risk inherent in the allocation round system where projects have no guarantee of securing contracts. At the Offshore Renewable Energy Catapult, we recently asked ourselves what lessons our peers in long-established sectors, such as oil & gas and nuclear energy, might have for offshore wind. In particular, we have been speculating on the impacts of planning and executing at a much greater scale, through regional “mega-projects” and the impact this can have on some, if not all, of these systemic issues.
The global benchmark for mega-projects is now £100 billion: HS2, the Gorgon natural gas development in Australia, and the 35-year contract value for purchasing electricity from the Hinkley Point C nuclear plant are all in this price bracket. As a thought experiment, we used our knowledge of offshore wind project costs and development pipelines and identified a sweet spot of 15 gigawatts (GW) for an offshore wind mega-project in UK waters. This is approximately equal to all UK offshore wind installations to date, or four of the largest nuclear plants. Meeting the 2030 ambitions of the current government (50GW) or the Labour opposition (60GW) would require multiple offshore wind mega-projects. However, the government already plans to approve 5GW of projects each year (typically ranging in size from 0.5GW to 3GW) to take the UK total to 40GW by 2030. Developing three mega-projects, centred on the East Coast of England, then Scottish waters, then the Celtic Sea, with appropriately staggered timelines, would boost this to 50-60GW by around 2030 and establish a credible pipeline towards 100GW-plus by 2040, carrying us to the estimations the Climate Change Committee have made on the required energy mix to achieve net zero.
All massive, capital-intensive industries face similar ‘chicken or egg’ challenges: large-scale commitments require certainty and affordability; affordability and certainty flow from achieving large-scale deployment. Launching a new generation of 20 megawatt turbines requires up to £1bn for product R&D, plus an ability to stomach £5-10bn in commercial losses. Building the port infrastructure required to assemble, stage and maintain a single design of floating substructure can cost £100m-plus per site. Dedicated offshore power grids, each the size of a nation, will be much more efficient, cheaper, and require far fewer intrusive coastal landings, but the ideal technologies, such as high-voltage DC multi-node, have no use cases below a planning threshold of multiple gigawatts and tens of billions of capital investment in power generation. Faced with a similar scale of challenge when developing North Sea oil fields in the early 1970s, companies such as BP had no choice but to take a big step up to offshore production platforms of unprecedented size and complexity, developing and applying novel technologies as they did so. Governments, both national and local, played a critical role in setting the right market conditions and ensuring coordinated development of ports, pipelines and other infrastructure. Awarding 15GW mega-projects to suitably qualified consortia of offshore wind developers would provide essential foresight for the location and timing of grid and port investments, deepen contractual relationships between developers and the supply chain, and improve investor confidence across the market. The contracts flowing from a £50bn-plus mega-project would justify investments – in factories, R&D, infrastructure, and in transitioning from declining industries – that are not bankable at present. (We estimate that turbine manufacturers need to secure orders of 5GW/300 turbines per year within a given region, to trigger investment in a new manufacturing facility.)
Events of the past year have made governments open to new approaches to ensuring rapid, large-scale deployment of offshore wind. We propose five priorities for governments seeking to apply the mega-project approach:
Maintain a regular drumbeat of project allocation rounds but enhance these with transformative 15GW mega projects, developing domestic industry to drive UK achievement of key deployment milestones in the race toward net zero. To bolster certainty that mega-projects will be executed, options to adjust contract awards for inflation and to extend Regulated Asset Base financing, where appropriate, could be considered.
Consenting is currently a bottleneck for fixed and floating offshore wind. Innovative technologies could reduce consenting timelines from an average of five years to three years, while increasing confidence in decision-making for all stakeholders, if given appropriate recognition from regulators.
Against a stable backdrop of mega-projects with significant volume located in key geographies, regional innovation clusters should be expanded to drive scale-up and business transition. A programme of key demonstrators – towers, blades and floating platforms are some of the priority areas – should be developed to pump-prime the UK supply chain, and de-risk UK technologies in areas where we can be genuinely world-leading. Existing growth programmes which are working well, such as the industry-funded Offshore Wind Growth Partnership, should be boosted.
Mega-projects will establish the location, scale, timing and investor interest to enable confident public-private investments in ports, grid and other critical infrastructure, including offshore grids and green hydrogen. This low-risk investment profile will attract new, lower risk-appetite investors.
Mega-projects will have bigger budgets and longer timescales to support de-risking and learning. The UK will be able to leverage its leading research and testing facilities to learn from rigorous testing of OSW hardware. Larger projects will also allow sustained R&D over multiple years, and full-scale demonstrations will be more easily accommodated in a mega-project with 300-1,000 turbines, creating entry points for innovation which ordinarily gets locked down at the auction bidding stage. Floating wind, in particular, is at a stage where it will benefit from increased certainty and scale.
European countries are alive to the need for greater scale in offshore wind development. The nine member countries of the North Seas Energy Cooperation (NSEC) recently agreed to coordinate auctions of around 15GW every year and award almost 100GW by 2030. NSEC countries cite the potential for jointly planned mega-auctions to ‘increase predictability in the wind power sector and facilitate better cooperation and coordination on cables, pipes, port infrastructure and access to resources, and help the sector with its mid- and long-term (financial) planning’. The UK was an observer at the relevant NSEC meeting in the Hague on 20th November.
Political leaders rightly expect offshore wind to be the backbone of our future energy system. Mega-projects, if configured in the right way, could be the best approach to achieving the required scale and pace of deployment, and unlocking the prize of clean, affordable and secure energy while creating sustainable growth in regions of the UK which need it most.
This blog was written by Dr. Steve Wyatt, Director – Strategy and Emerging Technology