Offshore cost-cutting Task Force

An interesting announcement from DECC last week. A ‘task force’ has been created to reduce the costs of offshore wind to £100 MWh by 2020.

Sensible? In a word, yes. Government, for fairly obvious economic reasons, can’t go on subsidising the offshore wind industry indefinitely, and there’s a point at which the UK voting public will baulk at electricity costs from their utilities.

But can it be done? That probably depends on how effective the task force can actually be. There are certainly some industry heavyweights on board, who will bring a huge amount of knowledge and experience to the table, from a wide variety of backgrounds. Whether they can collectively tackle some of the broader macro problems, though, is perhaps debatable, and there are certainly some conflicting forces at play.

The Government is keen to develop a UK supply chain to create jobs and security, and prevent subsidies going to overseas businesses for UK projects. Witness an estimated 80% of Government financial support for London Array going to foreign-owned firms, for example. Yet by the same token, whilst the UK can boast a number of offshore oil and gas businesses, they aren’t quite exactly transferrable skills for offshore wind. And whilst there may not be any issues with an oil and gas firm getting on board for offshore wind, the banks are still skeptical as to whether this truly constitutes an industry track record when looking at offshore wind projects. Why is this important? Because without a track record, risk increases and project lending costs remain high, leading to higher MW/h costs.

It will, then, be a delicate balancing act for this ‘task force’, but ultimately, it’s probably better to ask the industry to try and find a way of addressing its costs, whilst maintaining a financial support structure, rather than cutting everybody off at the knees….

It will be interesting to hear the first recommendations.