The latest round of offshore wind farms to be built in the UK could reduce household energy bills by producing electricity very cheaply.
Renewable energy projects, including onshore and offshore wind and solar farms, have so far been subsidised by government support schemes. This has led to some to complain that clean energy is pushing up bills.
“Offshore wind power will soon be so cheap to produce that it will undercut fossil-fuelled power stations and may be the cheapest form of energy for the UK.” — Dr. Malte Jansen
However, the most recently approved offshore wind projects will most likely operate with ‘negative subsidies’ – paying money back to the government. The money will go towards reducing household energy bills as the offshore wind farms start producing power in the mid-2020s.
This is the conclusion of an analysis by an international team led by Imperial College London researchers published today (July 27, 2020) in Nature Energy.
Lead researcher Dr. Malte Jansen, from the Centre for Environmental Policy at Imperial, said: “Offshore wind power will soon be so cheap to produce that it will undercut fossil-fuelled power stations and may be the cheapest form of energy for the UK. Energy subsidies used to push up energy bills, but within a few years cheap renewable energy will see them brought down for the first time. This is an astonishing development.”
The analysis for five countries in Europe, including the UK, focused on a series of government auctions for offshore wind farms between February 2015 and September 2019. Companies that want to build wind farms bid in the auctions by stating the price at which they will sell the energy they produce to the government.
These are known as ‘contracts for difference’ or CfDs. If a company’s bid is higher than the wholesale electricity price on the UK market once the wind farm is up and running, then the company will receive a subsidy from the government to top up the price.
However, if the stated price is less than the wholesale price, then the company will pay the government back the difference. This payback is then passed through to consumer’s energy bills, reducing the amount that homes and businesses will pay for electricity.