Offshore Wind Faces Trouble in the UK
For many years, the UK has been a leader in offshore wind.
Out of the top 10 largest offshore wind farms in the UK, 6 belong to the UK. These include the Siemens-owned London Array and the Greater Gabbard wind farm, the largest and second largest, respectively.
However, that all could change soon, as the UK’s government moved last week to cap renewable energy subsidies at £200 million per year. The idea behind the move is to subsidize renewable energy producers who offer electricity with lower carbon emissions than those providing the same service with fossil-fuels. They hope to foster competition so renewable energy is provided to the consumers at the lowest possible cost.
The UK’s government called the subsidies a “boost” for renewable energy. Energy and Climate Change Secretary Ed Davey was exceedingly positive about the allocation of the funds.
“Our plan is powering growth and jobs as we build clean, secure electricity infrastructure for the future. By radically reforming the electricity markets, we’re making sure that de-carbonizing the power sector will come at the lowest possible cost to consumers,” Davey said. “Average annual investment in renewables has doubled since 2010—with a record breaking £8 billion worth in 2013. These projects will create green jobs and green growth, reduce our reliance on foreign-controlled volatile energy markets and make sure bill payers get the best possible deal.”
Naturally, renewable energy companies were not thrilled about the move, as they said it represented a large reduction in the support they were already receiving.
The funds will be distributed across three broad categories: strongly established forms of renewable energy such as solar and onshore wind, the conversion of fossil-fuel burning plants to biomass, and to less established forms of renewable energy, such as offshore wind.
RenewableUK’s Director of Policy Dr. Gordon Edge noted the policy’s direct effect on offshore wind.
“A successful launch of the first CfD allocation round is fundamental to building investment and industrial momentum. An excessively cautious approach affects the UK’s offshore wind industry in particular,” Dr. Edge said. “The sector needs long term visibility to give the UK the best chance of securing a strong local supply chain to drive down the cost of offshore wind energy. Failure to set even an indicative budget for the second allocation round at this crucial stage means that visibility is now extremely limited.”
On Bloomberg’s The Pulse, host Guy Johnson drove the point home, saying that offshore wind was the industry that would really “feel the pain.” His guest Ilesh Patel, who is a partner at consultancy firm Baringa, agreed wholeheartedly.
“That £155 million funds 500 MW, we think, equivalent to the London Array for example, off the east coast of Kent. Now that doesn’t go very far at all—considering we’ve got 20 or 30 projects that size fighting over that. If we’re only going to fund one of those over the next 4 or 5 years, that’s going to be a huge challenge.”
Patel continued, assessing the changes to funding as a whole, saying “[the policy] is well intentioned, but what they’ve ended up doing is giving a little money to everybody, but not enough to anybody.”
When asked what offshore wind projects he thought would survive, Patel was frank.
“Only the best will survive,” he said, “probably the top 5 or 6 projects.”
There are those, however, who believe turning away from offshore wind is in the UK’s best interests.
Chairman of Terra Firma—the majority shareholder in Infinis Energy—Guy Hands believes that relying on offshore wind to meet the UK’s renewable energy targets could prove a costly mistake.
“The Department of Energy has set a target of 18GW of installed offshore wind capacity by 2020. But only 3.7GW is operational today, with 1.4GW under construction and another 2.4GW having received planning consent,” Hands writes. “Even if all these projects are generating power by 2020, which is a big if, we won’t be halfway to the 20 per cent target. The only way this shortfall could be met is if every offshore wind project currently in the early planning stages were to be developed, receive consent, and be operational within the next six years. Given the inevitable planning delays, difficulties in raising capital and constraints in the supply chain, this seems impossible.”
With the new cap on subsidies, the impossibility may now be even greater.
Still, there’s plenty of momentum behind offshore wind.
This weekend, the UK Green Investment Bank announced its hiring of two offshore wind experts to help boost support and funding for projects. The two joining are Nick Gardiner from BNP Paribas, who will take on the role of managing director for offshore wind, leading GIB’s offshore wind direct investment team, and Karl Smith, who was previously a director in GIB’s offshore wind investment team, taking on the newly-created role of fund managing director.
”This is an exciting time for GIB’s offshore wind business, as we continue to look at investments in construction assets and start fundraising for the UK’s first dedicated offshore wind fund,” head of investment banking at GIB Ed Northam said. “I look forward to working with our two new MDs as we realize our ambitious plans for the offshore wind sector.”
E.ON also won a huge contract for build a 700 MW off the east coast of England. They hope that the project will attract $3.4 billion in investments.
“We’re driving investment in our energy security, and our plans have made us no. 1 in the world for investment in offshore wind energy,” Ed Davey said. “This project is great news for Sussex, providing green jobs as well as driving business opportunities right across the country in a sector with a clear roadmap for long-term growth.”
This was before the reduction in funding was announced, however. Now, the outlook may not be as positive.
Carbon dioxide removal revenues worth £2bn a year by 2030
Carbon dioxide removal revenues could reach £2bn a year by 2030 in the UK with costs per megatonne totalling up to £400 million, according to the National Infrastructure Commission.
Engineered greenhouse gas removals will become "a major new infrastructure sector" in the coming decades - although costs are uncertain given removal technologies are in their infancy - and revenues could match that of the UK’s water sector by 2050. The Commission’s analysis suggests engineered removals technologies need to have capacity to remove five to ten megatonnes of carbon dioxide no later than 2030, and between 40 and 100 megatonnes by 2050.
The Commission states technologies fit into two categories: extracting carbon dioxide directly out of the air; and bioenergy with carbon capture technology – processing biomass to recapture carbon dioxide absorbed as the fuel grew. In both cases, the captured CO2 is then stored permanently out of the atmosphere, typically under the seabed.
The report sets out how the engineered removal and storage of carbon dioxide offers the most realistic way to mitigate the final slice of emissions expected to remain by the 2040s from sources that don’t currently have a decarbonisation solution, like aviation and agriculture.
It stresses that the potential of these technologies is “not an excuse to delay necessary action elsewhere” and cannot replace efforts to reduce emissions from sectors like road transport or power, where removals would be a more expensive alternative.
The critical role these technologies will play in meeting climate targets means government must rapidly kick start the sector so that it becomes viable by the 2030s, according to the report, which was commissioned by government in November 2020.
Early movement by the UK to develop the expertise and capacity in greenhouse gas removal technologies could create a comparative advantage, with the prospect of other countries needing to procure the knowledge and skills the UK develops.
The Commission recommends that government should support the development of this new sector in the short term with policies that drive delivery of these technologies and create demand through obligations on polluting industries, which will over time enable a competitive market to develop. Robust independent regulation must also be put in place from the start to help build public and investor confidence.
While the burden of these costs could be shared by different parts of industries required to pay for removals or in part shared with government, the report acknowledges that, over the longer term, the aim should be to have polluting sectors pay for removals they need to reach carbon targets.
Polluting industries are likely to pass a proportion of the costs onto consumers. While those with bigger household expenditures will pay more than those on lower incomes, the report underlines that government will need to identify ways of protecting vulnerable consumers and to decide where in relevant industry supply chains the costs should fall.
Chair of the National Infrastructure Commission, Sir John Armitt, said taking steps to clean our air is something we’re going to have to get used to, just as we already manage our wastewater and household refuse.
"While engineered removals will not be everyone’s favourite device in the toolkit, they are there for the hardest jobs. And in the overall project of mitigating our impact on the planet for the sake of generations to come, we need every tool we can find," he said.
“But to get close to having the sector operating where and when we need it to, the government needs to get ahead of the game now. The adaptive approach to market building we recommend will create the best environment for emerging technologies to develop quickly and show their worth, avoiding the need for government to pick winners. We know from the dramatic fall in the cost of renewables that this approach works and we must apply the lessons learned to this novel, but necessary, technology.”
The Intergovernmental Panel on Climate Change and International Energy Agency estimate a global capacity for engineered removals of 2,000 to 16,000 megatonnes of carbon dioxide each year by 2050 will be needed in order to meet global reduction targets.
Yesterday Summit Carbon Solutions received "a strategic investment" from John Deere to advance a major CCUS project (click here). The project will accelerate decarbonisation efforts across the agriculture industry by enabling the production of low carbon ethanol, resulting in the production of more sustainable food, feed, and fuel. Summit Carbon Solutions has partnered with 31 biorefineries across the Midwest United States to capture and permanently sequester their CO2 emissions.
Cory Reed, President, Agriculture & Turf Division of John Deere, said: "Carbon neutral ethanol would have a positive impact on the environment and bolster the long-term sustainability of the agriculture industry. The work Summit Carbon Solutions is doing will be critical in delivering on these goals."
McKinsey highlights a number of CCUS methods which can drive CO2 to net zero:
- Today’s leader: Enhanced oil recovery Among CO2 uses by industry, enhanced oil recovery leads the field. It accounts for around 90 percent of all CO2 usage today
- Cementing in CO2 for the ages New processes could lock up CO2 permanently in concrete, “storing” CO2 in buildings, sidewalks, or anywhere else concrete is used
- Carbon neutral fuel for jets Technically, CO2 could be used to create virtually any type of fuel. Through a chemical reaction, CO2 captured from industry can be combined with hydrogen to create synthetic gasoline, jet fuel, and diesel
- Capturing CO2 from ambient air - anywhere Direct air capture (DAC) could push CO2 emissions into negative territory in a big way
- The biomass-energy cycle: CO2 neutral or even negative Bioenergy with carbon capture and storage relies on nature to remove CO2 from the atmosphere for use elsewhere