Matthew Spencer: Region can be powerhouse of a greener future

Proposed wind farms at Dogger Bank could generate thousands more direct and indirect jobs in the 2020s along with billions of pounds of private investment.

This Government’s reform of electricity markets has created a good framework for encouraging these investments. It has made available 15 year cast-iron contracts for successful offshore wind projects. Competition for these contracts has added strong downward pressure on prices, vital since this system is funded by billpayers. It has, however, left major unanswered questions about what policies and funding will look like in the 2020s.

This may sound a long way off. However offshore wind farms are huge, complex and expensive projects that can take a decade to bring through development. Developers must spend tens of millions of pounds chartering vessels, carrying out surveys at sea and applying for consents.

A week, famously a long time in politics, is a blink-of-an-eye in the infrastructure world. The 180 months remaining between now and 2030 only nudge us just past completion for the biggest rail or energy generation projects currently on the cards. This makes dealing with the short time horizons of politics particularly challenging.

Green Alliance, the environmental think-tank of which I am director, has looked beyond the current uncertainties to assess the conditions necessary to realise the full potential of UK offshore wind. Last week we published new research on the future of UK offshore wind in the 2020s, the decade in which the heavy lifting for decarbonisation of the UK’s power generation has to take place. Our conclusion is that policy choices made in the first couple of years of the next parliament will have a profound effect on the size and health of the offshore wind manufacturing sector during the 2020s because of the huge time lag between development and operation.

Our discussions with experts from inside and outside the industry revealed a familiar dilemma: costs need to come down but they can’t come down fast without economies of scale. In other words innovation requires investment in learning at sea, rather than in the lab.

The danger is that this could lead to the next government becoming stuck in a “wait and see” approach, insisting that no further support can be given before costs have come down 
but without giving the sector a fair chance of doing so.

Those of us who care about reviving UK manufacturing and power sector decarbonisation need to help them find a better way through.

Offshore wind generation attracted £6.5bn of investment between 2010 and 2013, nearly three times more than gas generation over the same period, making a positive impact on the economies of former industrial areas such as Hull, East Riding and Tyneside. It’s been estimated that the UK’s current industrial base could provide up to 38 per cent of the content for the Dogger Bank projects, equating to an investment of close to £7bn.

However the emergence of new manufacturing facilities this figure could rise to as much as £13bn – much of it in the Yorkshire and Humber region.

The industrial and decarbonisation benefits of offshore wind can be achieved if government can provide stability. Steady growth is far preferable to the peaks and troughs of “boom and bust”, which wreak havoc on small suppliers and often lead to higher costs. Our analysis suggests that with a steady trajectory to 25 gigawatts of offshore wind in 2030 (we currently have just under four) the UK supply chain investment could be of the order of £1.8bn per year for the next 15 years.

We’ve concluded that a “commit and review” approach would allow the UK to get the best of both worlds. The government would give confidence to offshore wind investors by committing to a minimum size for the market in the early 2020s while protecting billpayers by locking in a review of the industry’s cost reduction performance before completing any contracts. This approach would help the next government make some big budgetary decisions in its first two years.

By committing to a minimum volume of offshore wind it can keep an “all of the above” energy policy alive, see which technologies emerge as the leading contenders.

If the offshore wind sector comes good, we could have a new world-leading industry in British waters, much of it in the North East. Getting energy policy makers to think in decades rather than one year at a time is the first step to achieving this.

Matthew Spencer is director of the Green Alliance. Follow him on Twitter at @Spencerthink