is that we, as consumers, will ultimately end up paying a higher price for energy as the Government focuses its support towards currently less advanced offshore wind, wave, and tidal or new nuclear facilities.
This has been emphasised by National Grid’s recent announcement that the UK’s spare generation capacity over the forthcoming winter was forecast to fall to as little as 1.2% before they implemented their contingency measures, at a cost of £36m to the taxpayer, to increase capacity.
Whether this signals the end of the onshore wind industry in the UK is questionable as, for some years, most developers have been bracing themselves for the removal of support. This will now occur over a shorter period than previously anticipated. These early cuts will simply drive developers to be more selective in deciding which sites to progress and necessitate the need for more rigorous upfront due diligence and power price modelling.
Whilst power prices have fallen recently on the back of reduced oil prices, given the declining infrastructure and shortage of supply in the market they are forecast to rise and significantly outstrip inflation as has been the case over the last five to 10 years.
Turbine pricing will have to reduce and this has been, and still is, influenced by the strength of Sterling versus the Euro. As a consequence, viable opportunities will still arise where developers can secure the most affordable grid connections, typically as extensions to existing operational sites, and combine these with higher wind speed sites.
*A Contract for Difference (CfD) is a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), a government-owned company. A generator party to a CFD is paid the difference between the ‘strike price’ – a price for electricity reflecting the cost of investing in a particular low carbon technology – and the ‘reference price’– a measure of the average market price for electricity in the GB market. It gives greater certainty and stability of revenues to electricity generators by reducing their exposure to volatile wholesale prices, whilst protecting consumers from paying for higher support costs when electricity prices are high.