The UK offshore wind industry could lose financial support for projects due to rising inflation, hampering the country’s progress towards its climate goals. The government is about to announce the results of the recent auction for financial support contracts and there are concerns that many offshore wind developers have not been able to participate due to rising costs in the sector. Few projects submitting bids would jeopardize the government’s target of 50 GW of offshore wind power by 2030.
Offshore wind farm developers face rising construction costs due to rising inflation and higher borrowing costs. Inflationary pressures have already halted work on a large offshore wind farm off the Norfolk coast. Swedish energy group Vattenfall has suspended construction of the Norfolk Boreas wind farm due to a cost increase of more than 40%.
Industry group RenewableUK has consistently urged the government to adjust the auction to reflect higher costs in the economy. The UK is at risk of losing its global lead in offshore wind energy as other countries, including the US, Europe and parts of Asia, increase investment in the sector.
The impact of inflation has made it impossible for investors to cover their costs, making it difficult for developers to obtain financial support. Developers can therefore opt for a ‘hybrid’ financing model by auctioning only part of their offshore wind farms and relying on bilateral contracts with energy intensive companies to guarantee the rest of their project revenues.
These setbacks for the offshore wind industry follow changes in planning laws that make it easier for onshore wind energy developers to apply for permits, but still put them at a disadvantage compared to other infrastructure projects. Developers may remain reluctant to invest in wind farms in England due to the challenges they face compared to other countries.