How solar and wind costs have really fallen in latest UK contract auction

despite the (terrible) Government cock-up on offshore wind

The dramatic increase in interest rates over the last 15 months has obscured the fact that the Government’s latest renewable auction results reveal falls in the costs of onshore wind and especially solar pv.

On the face of it, the prices of contracts awarded to solar farms have risen from £46 to £47 per MWh and the prices of onshore wind have risen from £42 per MWh to £52 per MWh (prices rounded 2012 prices). But interest rates have increased by around four points in the period between the July 2022 round of auctions and today’s announced results. Once you factor these in (using discounted cash flow analysis) then the equivalent prices for solar pv will be £34 per MWh and for onshore wind at £40 per MWh. That’s a fall in costs for solar pv of around a quarter.

This reflects global trends with continuing rapid declines in the cost of solar pv. You can literally see the difference. Ten years ago a solar farm would have occupied twice the space in terms of panel area compared to what they will do now, never mind in the future.

The news is good for onshore wind, as well, with smaller, but still significant declines in price. Onshore wind has looked more expensive than offshore wind in last year’s auction round with offshore wind coming in then (in 2022) at just above £37 per MWh (again in 2012 prices). I say ‘looked’ because the institutions financing onshore as opposed to offshore wind are rather different. There are good reasons to suggest that the multinational corporations that have been financing offshore wind are able to leverage funds better (see Jerome Guillet’s commentaries on that).

In fact, interest rate rises affect offshore wind more than onshore wind because offshore wind has a higher capital cost and therefore will be affected relatively more by an increase in interest rates. But not that much! I estimate that if Hornsea 3 offshore wind farm (which won a bid at £37.35 per MWh in 2022) was priced with interest rates 4 percent higher it would come in at around £50 per MWh. That is not counting any inflation over and above the inflation adjustment used by the Government.

Now £50 per MWh (again in 2012 prices) is a lot higher than the £44 per MWh cap the Government imposed on offshore wind, so it is not hard to see how the Government has failed miserably to procure any new offshore wind. It is sheer political incompetence. No two ways about this - probably inspired by the Treasury who have a reputation for not liking renewable energy!

Ironically of course the anti-renewables lobby is generally backing nuclear power, which I can assure you is affected a whole lot worse by interest rises than renewable energy. But then nuclear is not really deliverable at any interest rate!

Also, it has to be added that all of these renewable prices are much much lower than the costs of power from gas-fired power plant, so the consumer is missing out big time from the Treasury’s funny-money calculations