Let's make offshore wind cheaper!

If you only read the reports in the mainstream media about the UKERC report released last week, you might think that offshore wind will be forever more expensive than coal & gas. It’s certainly true that right now electricity from offshore wind turbines is pricey – but let’s look at how things will change in the future.

Firstly, let’s look at where we are now. Electricity from combined cycle gas turbines (CCGT: the most common type of gas power plant) costs about £80 per megawatt-hour. Coal plants produce electricity at a cost of about £104.5/MWh. Nuclear comes in around £99/MWh. Onshore wind is £95/MWh, and offshore is £150/MWh. Biomass is about £102/MWh – we won’t focus on it here, but it’s likely that it’ll come down to £84/MWh but 2023.

The missing factor from the discussion in the Mail and the Telegraph are carbon costs associated with fossil fuel generation – apparently onshore wind ‘is hampered by complaints that it ruins the landscape’ but coal and gas are not hampered by complaints that they ruin the planet. This is the missing factor in the prices of generation from fossil fuels – the cost they have in terms of their impact on the atmosphere.

While some disagree with the principle of applying a cost to global warming, doing so is vital to lend politicians a tool they can use to understand the impact of an energy mix based on high-carbon fuels. That’s why the Stern Review used the idea of the Social Cost of Carbon – the cost of the impact of climate change in the years ahead. Recently this has been superseded by the cost of carbon under the European Emissions Trading Scheme, which uses a market mechanism to apply the cost of mitigating carbon emissions to those emissions themselves. This is factored into the prices given above – about £15/MWh for gas and about £40/MWh for coal.

We know that this price will rise in the future, as it becomes more and more difficult to remove carbon from our economy. As a consequence, by 2017 onshore wind will be the cheapest way of generating electricity, costing about £84/MWh against £88/MWh for CCGT. Offshore wind will still be expensive – but let’s look at how we can bring its cost down.

One of the most important drivers of cost is the exchange rate. All of our current offshore wind turbines are imported from Europe. The euro has fallen against the pound over the last five years, only rising this year in the wake of the Greek crisis as speculators fled the euro to the relatively more stable pound. Your pound that bought you 1.5 euros in 2005 would only buy you 1.1 euros this year. Put it another way, your £3m that bought you two turbines in 2005 would only buy you one-and-a-half now. The UKERC estimates that a fluctuation of 20% would lead to an increase in costs of erecting offshore turbines of 12% - which is a substantial portion of the cost given above.

The way to counter this is to build the turbines in the UK, protecting them from currency movements. Please back our Green Jobs campaign, to help ensure that this happens – not only providing up to 50,000 jobs, but eventually cutting electricity bills for all of us.

If this happens alongside other cost-cutting measures, the UKERC estimates that offshore wind could cost £95/MWh by 2025 – which would make it competitive with fossil fuel generation, even including carbon capture & storage.