The U.K. took a massive step forward towards boosting its
renewable energy capacity Friday after announcing plans to develop
32 gigawatts of new offshore wind energy--cementing its position as
the world leader in the sector.
The U.K. government Friday announced the winners of Round 3
development licenses for nine sites off the U.K. coast which, if
fully implemented, will put the country well on track to cutting
emissions, and to meet its 2020 European Union target to increase
to 15% the share of renewables in the U.K.'s energy mix.
The scale of the task ahead--which will require the installation
of around 6,400 turbines over the next 10 years--has been compared
to the development of North Sea oil and gas in the 1970s.
The cost of developing the new generation capacity, which could
provide up to a quarter of the country's power, would require
investment of around GBP100 billion, according to the Crown Estate,
owner of the U.K. seabed. Ahead of Friday's announcement, it was
expected that 25 gigawatts of new offshore wind capacity would be
awarded.
Winners of the nine sites --the world's largest offshore wind
tender to date--included major European utilities such as RWE AG
(RWE.XE), E.ON AG (EOAN.XE), Centrica PLC (CNA.LN), Scottish and
Southern Energy PLC (SSE.LN), Iberdrola SA (IBE.MC), Vattenfall,
EDP Renovaveis (EDPR.LB), and others such as Statoil ASA (STO),
Siemens AG (SI) and Fluor Corp.(FLR).
U.K. Prime Minister Gordon Brown said the announcement would
provide a substantial new platform for investing in U.K. industrial
capacity.
"The offshore wind industry is at the heart of the U.K.
economy's shift to low carbon and could be worth GBP75 billion and
support up to 70,000 jobs by 2020," Brown said.
The Crown Estate estimated that around GBP75 billion would be
required to develop the wind farms, GBP15 billion for transmission
infrastructure, and GBP5 billion to GBP10 billion to expand the
offshore wind industry supply chain.
Offshore wind power currently costs around GBP3 million a
megawatt to develop, although that figure is expected to fall as
the supply chain expands.
Rob Hastings, the Crown Estate's director of marine estate, said
that having a manufacturing and supply base in the U.K. would make
the projects cheaper to build. The Crown Estate is holding twelve
supply chain events across the U.K. to support the sector.
"Once the supply chain and the whole industry is mobilized, it
will force the pace of development, just like it did in the North
Sea oil and gas sector," Hastings said.
The largest development will be in the Dogger Bank zone, where
up to nine gigawatts of capacity are to be installed by a
consortium equally owned by SSE Renewables, RWE Npower Renewables,
Statoil and Statkraft (SKT.YY).
However, the scale of the challenge is significant.
Wind farm developers face engineering and technology challenges
as well as massive costs from an industry still in its infancy,
developers and analysts have said.
Currently, most of the wind farms being developed under the
U.K.'s first two offshore tender rounds--totaling 8 gigawatts of
capacity--are in water less than 20 meters deep. Most of the Round
3 turbines will be located in water over 30 meters deep, and up to
285 kilometers offshore.
Mainstream Renewable Power CEO Eddie O'Connor said Friday that a
hub comprising new harbor and manufacturing facilities, a research
and development site and financial services facilities would be
needed on the U.K.'s east coast to support the offshore
development.
Managing the intermittency of wind power will also pose a
challenge, although the U.K.'s electricity network operator
National Grid has said it is confident it will be able to
accommodate the peaks and troughs of supply and demand.
O'Connor said a new "super grid"--an offshore transmission grid
linking Norway, Britain, the U.K. and Denmark--was vital to the
success of the Round 3 projects, which are due to start being
constructed in 2014 at the earliest.
In December, nine countries including the U.K. gave their
political support to an integrated offshore electricity grid in the
North and Irish Seas to aid the development of offshore wind and
boost flexibility of offshore supplies. But there are no concrete
plans or investors for the project yet.
"You could bring a few of the first [Round 3] projects ashore
and connect them radially, but if you wanted to connect 25 to 32
gigawatts, the first leg of the super grid would have to be
operational by 2017 to 2018," O'Connor said, adding that such a
project cost GBP10 billion to GBP15 billion.
Mainstream Renewable Power and Siemens Project Ventures, with
Hochtief Construction, won the Hornsea zone, where up to four
gigawatts of offshore wind generation capacity is to be
developed.
Finance is also an issue. In the previous two tender rounds,
smaller projects were delayed until the U.K. government raised its
financial support mechanism.
"These [Round 3] projects are not just hugely expensive and
require a significant amount of capital but, given their size and
the technical challenges faced in their construction, these
projects are considered very risky by the investment community,"
Andy Cox, energy partner at KPMG said.
Sarwjit Sambhi, managing director of gas and electricity
supplier Centrica, said the sector would need a long-term stable
support mechanism to make the investments commercially viable.
"Round 3 should send a strong signal to the renewables supply
chain in the U.K. and a suitable support mechanism would
incentivize its creation to increase competition, reducing costs
and creating thousands of new jobs," Sambhi said.
Zone Developer* Capacity (GW)
=========== ===================================== =============
Dogger Bank Zone SSE Renewables, RWE Npower Renewables, 9
Statoil and Statkraft
Norfolk Bank Zone Scottish Power Renewables and 7.2
Vattenfall Vindkraft
Irish Sea Zone Centrica Renewable Energy, 4.2
involving RES Group
Hornsea Zone Mainstream Renewable Power 4
and Siemens Project Ventures,
involving Hochtief Construction
Firth of Forth Zone SSE Renewables and Fluor 3.5
Bristol Channel Zone RWE Npower Renewables 1.5
Moray Firth Zone EDP Renovaveis (75%) and 1.3
SeaEnergy Renewables (25%)
W. of Isle of Wight Zone Eneco New Energy 0.9
Hastings Zone Eon Climate and Renewables UK 0.6
*unless specified otherwise, developers' shares in each
consortium are equal
-By Selina Williams, Dow Jones Newswires +44 207 842 9262;
selina.williams@dowjones.com
(Nick Heath in London contributed to this item)
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