Enough Hot Air; the Importance of Investment in Wind Power

Published: 5 November 2013

Wind power is a major growth sector in the UK energy economy. It has been, and will continue to be, an opportunity for new investment to both provide green energy and replacement capacity in the energy generation market.

The UK has a great deal of catching up to do with the existing industries in countries such as Denmark, and more recently, China. Not only should increased investment and growth in this sector be a priority for Government but it will also provide much needed employment in the UK.

There has been resistance to the placement of land-based wind turbines in some parts of the country. The Chief Executive of SSE, Alistair Phillips-Davies recently suggested that “maybe it is time to retreat from decarbonisation and focus more on the cost of living…..if we carry on firmly behind the green agenda, we will continue to have price increases like this”. Nevertheless, with the average household energy bill now £1,267 it is essential to explore all avenues of increasing the overall generating capacity.

The technology for offshore placement of wind turbines is still providing technological challenges. However, there is great potential for the development of a strong offshore wind market in the UK. This country is widely recognised as one of the most attractive locations in the world for offshore wind investment and sector growth. Additionally, wind power has far greater generating flexibility than traditional energy plants.

Of course, there is still a need for the sector to be subsidised, along with the nuclear energy generating industry. The present threat to the existing green energy levies is quite justifiably a cause for concern.

Green levies aside there appear to be differing views as to how the UK Government can help reduce domestic energy bills. Options include:

  1. Increased competition to force energy companies into providing better value for consumers, who are being encouraged to switch tariffs in the hope prices remain steady;
  2. Reforming and strengthening, if not replacement, of the current market regulator, Ofgem. Such that it has the capabilities and is robust enough to challenge suppliers. Comparisons have been drawn with the water regulator, Ofwat, which has the capability and muscle to limit price rises in the water industry;
  3. A one off tax;
  4. More emphasis should be placed on renewables.

Striking a balance between market reforms and decarbonising our energy supply seems to be one of the most demanding challenges facing the future of our energy system. In order to combat this the UK Government needs to attract investment to pay for renewable energy projects. It is estimated that the green component of household energy bills will be around 40% by 2030. Replacing a coal-fired generation requires large-scale private sector investment, which has just been secured from China for nuclear energy.

However, this investment could prove to be unattractive if cheaper energy sources, such as shale gas come on line. It is noted that nuclear power stations will be given 35 years of subsidy in comparison to 15 years for wind power. Any new nuclear reactors will not come on-line until 2023, essentially requiring wind power to replace much of the shortfall in UK demand, as a number of old coal power stations close. At the moment, there is too much risk as the narrowing gap between demand and supply increases the risk of blackouts over the next two years.

Reports from DECC imply that without renewable energy sources, such as wave, wind and tidal, our household bills would be £166 higher. However, offshore wind projects in the UK are under threat. Paul Coffey, Chief Operating Officer at RWE’s Renewable Energy Division, Innogy, said: “Offshore wind is the only technology that can be developed at scale, with gas, to address the looming capacity needs…..we cannot invest on promises and a lack of clarity and we are running out of time for offshore wind”.

There are thousands of people now employed in the offshore wind industry. Around 80% of Innogy’s Gwynt y Môr flagship wind farm staff are UK nationals, whilst only 17% of the €2bn cost is being spent in the UK. Half of the cost goes on turbines, which presently are all manufactured overseas.

There is no doubting the potential for a strong offshore wind market in the UK. This market has the potential to provide security of supply, lower carbon emissions and create even more jobs in an expanding and much in demand sector. We only need to exploit it.

Kit Walker is a Researcher in the Energy, Manufacturing & Infrastructure Practice at Berwick Partners

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