UK keeps offshore investors guessing


August 31, 2015

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It was not easy for the UK government to get MHI Vestas and Siemens to invest in new factories for offshore blades in the Isle of Wight and Hull respectively. However, both did.

But the government’s silence on further support for offshore wind will likely have both of them privately questioning their decisions. UK leaders have talked about supporting offshore wind for the long-term, but have not yet confirmed if a second auction under the Contracts for Difference regime will start as planned on 21 October. That is just seven weeks away.

On the face of it both Vestas and Siemens should be pretty happy.

Dong is set to use MHI Vestas turbines in the 330MW first phase of the extension of Walney offshore wind farm; and in the 256MW extension of the 90MW Burbo Bank. It has also ordered the firm’s turbines for the 450MW Borkum Riffgrund 2 in German waters.

Meanwhile, Dong has also taken full control of the 4GW Hornsea offshore wind zone, and it is looking at projects totalling 3GW at Hornsea 2 and 3. It is already using Siemens turbines at 1.2GW Hornsea 1, and people in Hull feel this new Hornsea deal will result in work for the Siemens factory at Green Port Hull. This plant is due to be operational next year.

There is also the comparatively strong performance of offshore wind despite a punishing slump in North Sea oil and gas.

Indeed, at Global Offshore Wind 2015 in London in May, UK energy and climate change minister Amber Rudd said that UK offshore wind was “one of the 21st century’s biggest industrial success stories”. This helped improve confidence.

But those working in UK offshore wind are getting increasingly concerned about the lack of communication from the government on future CfD plans. If this support is not forthcoming then it will hit those in the supply chain who are investing in their operations.

The current situation has not moved on — at least not publicly — since the government’s Low Carbon Contracts Company said in March that the second CfD auction would be “at the discretion” of the new government. If such support is not forthcoming then developers will find it hard to build new schemes, and work will dry up for those in the supply chain.

And Diana Johnson, the MP for Hull North, last week raised concerns that she has not heard more from the government about its pledge in December to form a National College for Wind Energy. The idea of this college is to train thousands of young people in the skills they need to work in the UK offshore wind industry. If it does not happen then it gives more weight to the idea that the UK government is not backing offshore wind for the long-term.

With such uncertainty we can see why Siemens would want to invest €200m in a factory for offshore turbine nacelles in Cuxhaven in Germany, announced this month, rather than the UK. There will be other strategic reasons for this but UK uncertainty cannot help.

Now, perhaps the government is simply taking longer than expected to work out its plans. Perhaps, but a CfD second auction is only be a continuation of what the ruling Conservative Party was doing under the previous government, when it was in coalition with
the Liberal Democrats. This is not new ground.

UK leaders may also point to the fact that they are supporting UK offshore wind, and only this month gave consent to the Forewind
consortium to build 2.4GW in two schemes in the Dogger Bank zone. Crucially, though, it is not the same as financial support.

In the next two months, the government can either let uncertainty fester, or spell out its plans for CfDs. We prefer the latter.

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