Wed, 23 Oct 2019

The world's biggest offshore wind park planned off the coast of England will probably in the next decade generate power more cheaply than by burning coal.

A number of offshore wind projects won contracts to sell power at guaranteed prices in a UK auction Friday. The price of 39.65 pounds per megawatt-hour (around R740) was 31% below the level in a similar auction two years ago.

The plunge highlights how offshore wind, which only a few years ago was a niche technology more expensive than nuclear reactors, is changing the economics of energy around the world. Both utilities and, increasingly, energy majors, are planning to spend $448 billion through 2030 on an eightfold capacity increase, according to BloombergNEF.

Projects from developers including SSE Plc, Equinor ASA and Innogy SE won offshore wind power-purchase contracts that will have the capacity to generate as much as 5.5 gigawatts of power, the government said. That includes a joint SSE-Equinor project off England's east coast to build the biggest single offshore wind park in the world.

"The auction results today show offshore wind is in line with current power prices - it is already competitive with existing fossil fuel plants, let alone new fossil fuels," said Deepa Venkateswaran, an analyst at Sanford C. Bernstein & Co. in London. "In the next auction in 2021 we will see costs go well below that of existing fossil fuel plants."

Equinor's success at the auction is a key step in its transition to becoming a broader energy company than just an oil and gas major. The state-controlled Norwegian company has a target of investing as much as 20% of its capital in new energy solutions by 2030.

Even as wind power moves away from a reliance on government subsidies, the contracts could still play an important role going forward. The guarantee helps developers secure financing and also make the assets more attractive to institutional investors who want reliable returns. The next UK auction round is set to take place in 2021.

The contracts also open up a track for investors to take stakes in some of these projects. Earlier this year, Iberdrola sold a stake in its 714-megawatt East Anglia One project to Macquarie Group Ltd. for 1.63 billion pounds (R30bn). Projects that have the backing of government-supported purchase agreements are often more attractive to investors who favor the guaranteed prices.

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