Offshore wind projects enjoy burgeoning investor confidence
Industry body and contract winner say economic case for Round Three projects is plenty strong enough to attract investors
Leading figures within the wind energy industry have downplayed fears that uncertainty over the future of the government's financial subsidy mechanism will make it difficult for developers to raise capital for the new wave of offshore wind projects that were awarded late last week.
The scale of the financial returns from the nine so-called Round Three projects, which together are expected to provide the UK with 32GW of new offshore wind energy capacity, are in large part dependent on the level of financial support the government allows through the Renewables Obligation mechanism.
Last year, under pressure from offshore wind farm developers struggling with the weakening pound and rising raw material costs, the government raised the number of sellable Renewable Obligation Certificates (ROCs) offshore they could issue to two ROCS per megawatt.
However, that level of support is only guaranteed up until 2014, a year before construction on many of the round three projects is scheduled to begin - a scenario that has prompted warnings that uncertainty over the future level of ROCs could make it difficult for projects developers to raise the required capital.
Sarwjit Sambhi, managing director of Power Generation at Centrica, which won the rights to develop one of the largest offshore wind farm zones, hinted that greater certainty was required. "Round Three should send a strong signal to the renewables supply chain in the UK and a suitable support mechanism would incentivise its creation to increase competition, reducing costs and creating thousands of new jobs," he argued.
However, growing numbers of industry insiders are confident that with the government pledging to retain some form of ROC support until at least 2025, the decision to review the level of ROC support for offshore wind in 2014 will not deter investors.
"The economic signal is strong enough," said Adam Bruce, global head of corporate affairs at Mainstream Renewable Power, part of a coalition awarded development rights for the Hornsea zone. "The sheer size and scale of Round Three means that it is inevitable that costs will come down and its absolutely appropriate that we have a rolling review [of subsidy levels] until that point."
He added that while it had been feared at one point that the current London Array offshore wind farm would face costs as high as £3.5m per megawatt it was now on track to see eventual costs fall below £3m per megawatt.
His comments were echoed by a spokesman for the British Wind Energy Association (BWEA) who predicted that the cost of manufacture and installation for offshore wind farms would continue to fall. "We think the subsidy as it stands is strong enough," he said. "This announcement represents a twenty-fold increase in global demand and that will bring prices down significantly."
The government also hinted strongly that it would not allow the economic case for the Round Three projects to become unviable, with Prime Minister Gordon Brown pledging that the government would help remove barriers to the rapid development of the new projects.
The BWEA recommended that the government should now focus its attention on identifying two ports in the UK that will act as hubs for offshore wind investment - a move it said could help encourage GE and Siemens, both of which are currently deciding on which side of the North Sea to locate new maufacturing facilities, to invest in the UK.
"What we don't want to see is a number of ports competing against each other with facilities spread out," said a spokesman for the group. "Government needs to pick two locations and concentrate efforts to build state-of-the-art quayside facilities there."
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