The most recent wave of offshore wind projects will most likely operate with negative subsidies, according to a recent report from Imperial College London.
It is though that UK offshore wind farms will be the first in the world which will be able to pay for the power that they produce due to a staggering development in the technologies used, especially considering how expensive the technology used to be in the not too distant past.
The combination of the drop in price for offshore wind power along with the small rise in the wholesale power prices means that the new wind farms may operate with a negative subsidy.
This leads to the operators of the windfarms effectively having to pay the Government to generate power. This makes the UK the first country likely to pass the negative subsidy threshold, ahead of the rest of Europe.
Britain passing the negative subsidy threshold shows how much the costs of offshore wind power have decreased in recent years. It was only a few years ago when wind farm operators had to make deals with the government so that they would be paid well to produce renewable power. However, now the tables have turned and the UK government will be able to retrieve some of the money it has paid out in subsidies to the windfarm operators.
Offshore wind farm developers have agreements to sell their power at a certain price at government auctions in exchange for a stable return. In the deal, if the wholesale cost of electricity drops below the strike price then the Government will pay the difference to the operators. However, if the wholesale prices are higher can the cost of electricity then the wind farm operators must pay the difference.
The offshore wind auction that took place last year took the offshore price of wind power down to £40 per megawatt hour. The analysis that was completed by Imperial College London suggests that it is probable that the wholesale prices of power will rise above this price during the life cycle of the project. Therefore wind farm operators will then have to pay the Government the change in the £40 and the wholesale price. These savings could then be passed to UK homes.
It is hoped that there will be a rapid expansion of offshore windpower now due to its reduced expenses. This will especially help with meeting the UK’s climate change targets.