The global competition to secure and expand renewable energy, especially offshore wind, may hit the final customer with higher-than-expected fees; as today’s auctions for wind power are as hot as oil and gas once were, just a few years ago, a Reuters analysis suggests.
Firstly, as we have reported previously, as energy transition gains pace, and the Joe Biden administration pushes renewable energy, offshore wind comes as a broad strategy to lower emissions globally.
Consequently, the cost of securing sites to develop are getting higher and higher; in fact, to levels that some operators say are unsustainable and that will ultimately hurt consumers by driving up power prices.
Secondly, for this year, governments around the world will auction nearly 30 gigawatts of new offshore capacity; almost a 100% increase from existing capacity of 35 GW. Such tenders are also shaping to be the most competitive ever in the energy industry.
Therefore, several energy companies, including oil major and supermajor are moving rapidly, almost aggressively towards increasing their renewable energy portfolio; in part, to satisfy the wishes of stakeholders that want to see viable long-term business models, and also to satisfy governments with ambitious net zero goals.
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Offshore wind officials concern about securing fees price
In fact, a Crown Estate leasing round for offshore wind took place earlier this year; with BP and German utility EnBW paying a record price to secure two sites, for a total of 3 GW. All traditional offshore wind developers, Iberdrola, Orsted and SSE were unsuccessful in the leasing round.
Indeed, the price that BP and EnBW paid was so high, that Duncan Clark, Orsted’s UK head, said. “Someone is going to have to pay and it’s probably, at least in part, the consumer.” “Some analysts also said the high fees threaten to erode the huge cost reductions the industry has achieved over the past decade.” Reuters analyst remarks.
However, BP said the price was justified; as the location for the sites was strategical, close to the shore allowing for shorter, cheaper connection cables; and also next to each other allowing for cost efficiencies across both projects.
Finally, although projects from the recent Crown Estate auction will not start construction until 2027-2030, when prices go down more, some industry officials fear for an overheated market. “So, you are going to create an over-heated market when what we want to see is more opportunities made available.” Said Ben Backwell; CEO of the Global Wind Energy Council.