15 September 2023

How to put wind in the sails of the UK’s renewables rollout

By Virginia Crosbie MP

No new offshore windfarms were secured at the government’s latest auction for new renewable energy contracts – a fact that is undoubtedly disappointing. But renewables remain the cheapest way of generating electricity in the UK, reducing household energy bills and cutting emissions. More than this though, they enhance our energy security, helping us to harness homegrown power from the wind, sun, and tides. Ministers should respond with a clear plan to get the renewables rollout back on track. Nowhere is this more true than on our windy, and sometimes sunny, Ynys Môn shores.

The Conservatives have a strong record on renewables. Since 2010, renewables have gone from producing less than 10% of our power, to now regularly producing over 50%.  At the same time, prices for offshore wind have fallen by over 65%, from £139/MWh in 2013 down to £61/MWh. And since 1990, our emissions have reduced by 48%, whilst our economy has grown faster than any other G7 country.

It’s therefore disheartening that this year’s clean power auction hasn’t unlocked our maximum renewable energy potential. In particular, a lack of successful offshore wind projects highlights the need for reform to the way clean energy contracts (CfDs) are awarded.

As gas prices have risen, countries have raced to develop more renewables, catching up with the UK as a world leader. Supply chains and commodities have not kept up with this increased demand, pushing up manufacturing costs by up to 38%. Coupled with high interest rates, this has increased the costs of developing renewables in the UK.

Unfortunately, the maximum price that the government allowed developers to bid at didn’t take these increased costs into account, leaving developers unable to match the prices and therefore unable to bid in the auction.

On the positive side, CfD auctions now take place every year. Swift government action to improve the process can therefore have immediate impact, unlocking the full renewable potential in the next auction round.

Firstly, the prices companies are able to charge for the energy they produce must be sustainable, taking into account the need for UK jobs and reflective of global supply chain pressures. CfDs are intended to support the development of renewables, but unsustainably low ‘strike prices’ undermine the very nature of this.

The government is consulting on giving extra weight to bids that promise to buy from British firms and create local jobs. Not only would this boost the economy, but also create up to 150,000 jobs in renewable energy. Hundreds of these jobs could be on Anglesey, the Energy Island, on the proposed wind farms and tidal stream projects around our coastline. Supporting British supply chains should be an important factor in awarding contracts, however unless the increased costs of this are reflected in the cap on strike prices, more projects will be pushed out of bidding.

Secondly, given the higher costs of developing offshore wind, projects should not be competing against cheaper-to-build onshore wind, as was the case in this auction. Given this year they were competing in the same pot of money, it is unsurprising that offshore wind projects were unsuccessful as they simply couldn’t match the lower cost of solar or onshore wind.

Britain currently has the world’s four largest offshore wind farms. Separating the funding pots will mean more offshore wind can be developed and will drive down electricity prices.

Finally, government should give a permanent tax break to renewables developers, through making full capital expensing permanent. At present, the scheme is due to expire in 2026, however to compete with the US Inflation Reduction Act and EU Green Deal Industrial Plan, which offer incentives over a ten year period, full expensing should be made permanent.

This tax break allows businesses to deduct the cost of eligible investments from their corporation tax bills straight away, supporting capital-intensive renewable developments and boosting supply chains.

By not maximising our renewable energy potential, we remain exposed to international gas price shocks for more time. Given gas is significantly more expensive than renewables, this means higher bills for longer. And since we import nearly half of our gas from abroad, it also means greater import dependency.

Despite a reduced number of successful projects this year, we should always welcome the development of more renewables. To ensure we reach net zero, lower energy bills, and support British supply chains, immediate action is needed to reform CfDs.

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Virginia Crosbie is MP for Ynys Môn.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.