The Cost of Power

One of the biggest issues confronting our country over the course of the next parliament will be how we cross the energy gap – the shortfall in the UK’s electricity production capacity caused by the shutting down of our older power stations from 2015 onwards. Each of the parties has laid out the outlines of a plan for our future energy supply in their manifesto, all of which demonstrate a strong commitment to renewable energy. There are, however, some differences that have attracted scrutiny by the media.

Last week the Financial Times ran an article discussing the Lib Dems’ manifesto pledges, which touched on their proposal to overcome the energy gap using renewable energy - excluding nuclear power from the UK’s future energy mix. The FT made the claim that “offshore wind, the most effective such source, is roughly three times as expensive as nuclear to build…”

Putting politics to one side, if this is true, then it would seem like a renewables revolution is unaffordable – the enormous expansion of offshore wind planned in the seas round Britain, which has the potential to supply up to a third of electricity needs, would be so much more expensive than nuclear power that no party could even consider it.

But is it true? Let’s have a look at what affects the construction costs of an offshore wind turbine.

Right now, over 98% of all the operational wind turbines in the world are on land. The reason is fairly easy to see – the big markets for wind power are the US, China, and Europe. The first two have enormous amounts of open space on land suitable for constructing wind farms – there are parts of Nebraska where you could build a 20-turbine farm and no-one would be any the wiser. Similarly, the vast Mongolian steppes combine strong winds with very few people and very little development. For both the US and China, the majority of their wind resource lies onshore.

Europeis different. Countries like Denmark and Germany, early starters in the race for wind, are beginning to reach the limits at which they can comfortably install new wind farms on land, and are beginning to look offshore. In the UK, our cumbersome planning system means much attention is being given to offshore – there’s estimated to be anything up to 1,000 terawatts of potential wind resource in our territorial waters, and expanding wind power as part of our energy mix will necessarily include expanding into our seas.

This, however, is a relatively new development, and as a consequence the market for offshore turbines has been very limited. This has precluded proper competition developing in the industry – between them, Siemens and Vestas have nearly 90% of the market. Right now, only one ship has been built with the capacity to install turbines offshore, and given that the UK’s third round of offshore development will result in the installation of up to 1,800 turbines in the sea per year over the course of the project, it’s clear that the industry has enormous barriers in its path. In 2007, Ernst & Young estimated in a report for the then DTI that the costs of installing offshore wind capacity were around £3,200 per kilowatt.

However, this situation is changing. New construction ships are being built, and new competitors are entering the offshore market, including Clipper and Mitsubishi. The Round 3 concessions in our seas have been taken up by companies like Centrica. When planning approval for new wind farms in the Round 3 zones is given, a new wind rush will begin in earnest, generating tens of thousands of jobs for manufacturers in the UK.

What of nuclear? The most recent estimate of installation costs for new nuclear plant comes from the International Energy Agency, whose research on the costs charged by current nuclear providers put them at around £2,000 to £3,000 per kilowatt. However, new nuclear power plants are a long-term commitment, and are unlikely to be ready much before 2020. As a consequence, the cost of financing the construction of these plants over such a long period becomes an important factor, typically adding up to £1,000 per kilowatt.

It’s clear that offshore wind is both necessary and affordable, and easily comparable to nuclear in terms of the costs to install new capacity. This is not to sideline the importance of nuclear as a low-carbon source of baseload power – a sensible energy mix that will help us combat climate change and reduce our reliance on fossil fuels may yet include it. However, it should not be seen as the only way we can cross the energy gap. Offshore wind, and its cheaper cousin onshore wind, must form a vital part of our future energy plans.