‘Don’t let barriers block wind farms and windfalls’

The UK’s wind industry is growing in strength, but steady progress cannot be taken for granted, writes Tim Probert


The UK leads the world in offshore wind energy and, after a relatively slow start, its onshore wind sector is beginning to catch up with European competitors.

Figures do not lie: in addition to 5,010 megawatts (MW) of onshore wind, the UK has installed 2,362MW of offshore wind – 60 per cent of total European Union capacity and more than three times greater than Denmark, its nearest rival. Overall, the UK is ranked as the world’s eighth largest producer of wind power.

In addition, there are six offshore wind farms under construction with a total capacity of 1,867MW and 84 onshore wind farms with a total output of 2,156MW. Furthermore, there are 265 consented onshore wind farms (3,930MW) and seven offshore (2,335MW). Add the 10.72 gigawatts (GW) in planning and the further 16GW of capacity that could be added offshore, and the picture appears rosy for the wind industry.

But it is not all plain sailing. This is a relatively young industry that is still growing in confidence, determined to find its way.

For onshore wind, particularly the smaller players, the most pressing concern is finance. Anecdotal evidence suggests there is currently limited UK funding available for sub-10MW projects. Developers have to finance projects at comparatively high interest rates and then refinance them. Once they are producing power and income, wind projects are high-quality assets that lenders are more comfortable with, so the refinanced loans tend to be cheaper.

For larger developers, the planning system remains a headache at times, particularly in England, where just 25 per cent of applications are approved by councils last year, although this year rates have improved substantially.

An industry that does not make money for local areas, as well as for project investors, is going to lose political will

Several councils have proposed introducing “buffer zones”, in some cases restricting wind farms to locations more than two miles from housing or imposing limits on the height of turbine towers.  Although England’s recently introduced National Planning Policy Framework states local authorities should have a positive strategy to promote renewable energy and these objections could be superseded at a national level or challenged in court, buffer zones threaten to complicate an already labyrinthine system.

One way developers are trying to ease the log jam is by sharing some of the benefits of the power they generate through community development funds. Energy and Climate Change Secretary Ed Davey says: “Far too often, communities see the wind farm but not the windfall. We want to ensure people benefit from having wind farms sited near them.”

Project developer Renewable Energy Generation, for example, has announced that it will donate £1 million to a community fund linked to a £16-million, 10MW wind farm in East Yorkshire, while villagers in Powys in Wales could be in line for up to £18 million if a 50-turbine project is approved.

The Department of Energy and Climate Change (DECC) is looking at ways to extend the concept to other schemes, while in Scotland, a Community Benefit Register was launched in September, allowing residents to get a better deal from developers by seeing what benefits other communities have received. It is hoped that community funds could help to unlock the planning constraints that, combined with the recession, mean it can take up to five years to get funding approval for some onshore wind projects.

In the longer term, the industry also faces a transition from the current Renewables Obligation (RO) regime to Feed-in Tariffs with Contracts for Difference (CfD), with potentially 31GW of wind to fund by 2020.

Some smaller wind developers worry that the removal of the obligation on suppliers to buy renewable power will hit them hard. “CfDs do not provide a route to market,” says Eric Machiels, chief executive at independent renewable developer Infinis. “The Big Six [power utilities] may become self-sufficient and small-to-medium developers may be left without an off-taker – it will be down to the individual supplier’s procurement strategies whether they will source from third parties.”

But Diane Dowdell, commercial director at renewable energy service provider Tradelink Solutions, says: “Off-takers will be there for independent generators, but we need to think about moving away from power purchase agreements with the Big Six and consider different routes to markets through aggregators or direct with industrial customers.”

DECC is well aware of these concerns. “We believe CfDs will offer a more competitive solution, but we are aware of the risks,” says a spokesman. “We are considering taking regulatory action in order to ease the transition to CfDs and intervene so that independent generators can sell their generated power. We will publish our findings later in the autumn alongside further information on how the CfDs will operate.”

For offshore wind, the primary concerns are profitability and regulatory uncertainty. Finance is expensive, utilities say that in some cases offshore wind does not generate the kind of returns they would hope for, that onshore wind developments are considerably more profitable, and at times they are struggling to arrive at final investment decisions.

However, there may be brighter news ahead. Developers say offshore wind turbine manufacturers have become more flexible with pricing and, because the next generation of turbines will have twice the capacity of the current fleet, the levelised cost of electricity of offshore wind should also fall.

The current capital expenditure (capex) estimate for offshore wind farms is £3 million per megawatt, but investors see this coming down sharply. However, capex will only fall if the supply chain for offshore wind is sufficiently developed. Several manufacturers have warned the government that political risk is postponing some decisions to invest in the UK.

Matthew Knight, Siemens’ director of business development for the UK’s Round 3 offshore wind programme, says the key to the future health of the industry is to create a local supply chain.

An industry that does not make money for local areas, as well as for project investors, is going to lose the political will necessary for its long-term prospects, warns Mr Knight, whose company has delayed until next year a decision on whether to build a £60-million turbine manufacturing facility in Hull.

“The UK has a huge opportunity because offshore wind turbines are too big to be built anywhere other than a coastal facility,” he says. “Turbines built in the UK will supply the whole of north-west Europe and most of continental Europe. If we delay for much longer, we will see the jobs spread over a wider area.”