Improving future pipeline visibility and certainty to enable supply chain investment

I joined Equinor’s UK Renewables division in September 2023 following five years of working in the UK’s Department of Energy Security and Net Zero (DESNZ), where I led the UK’s Offshore Transmission Network Review (OTNR)¹. I was appointed to Renewable UK’s Shadow Board² in January 2024, which has allowed me to connect with others in a wide variety of roles across the industry and to better understand some of the key challenges and opportunities the sector faces.

As a Civil Servant, my colleagues and I spent a lot of time thinking about how government policy can enable private sector investment, where targeted intervention is needed to address market failures and how the UK can ensure its renewables success story continues and maximises the associated economic benefits. All issues that are still highly pertinent as the industry heads to Global Offshore Wind in Manchester this week and as the country prepares to vote in a General Election on July 4th.

Now working in a global offshore wind developer that is developing some of the biggest and most innovative offshore wind farms in world, right here in the UK, it’s been no surprise just how much policy makers in countries around the world are keen to learn from our experience in the UK when developing their own offshore wind regimes.

For the UK, the downside of being world leading of course, is that everyone else can learn from your mistakes and missteps. So, in the context of a global competition for capital allocation in board rooms of offshore wind developers, the UK can’t afford to rest on its laurels when it comes to maintaining its position as one of the most attractive places in the world to develop offshore wind.

Despite this, while the UK is second only to China in terms of deployment, it has relatively underperformed in translating GW installed into inward supply chain investment, as highlighted in the recent report from the Institute for Public Policy Research (IPPR)³. The UK is not alone in pushing for more local content, but of course one project doesn’t make a factory and you can’t build a factory for each project in each country – particularly not in geographically proximate markets around the North Sea.

So how can the UK compete with the likes of the EU and the US in attracting this supply chain investment when it comes to offshore wind? It’s widely accepted that to compete on the depth of our pockets would be unsustainable. So, what else can we do?

On 1, we’ve already seen some great progress with publication of the UK’s Industrial Growth Plan⁴, which is a cold-eyed assessment and prioritisation of where UK competitive advantage could lie.

On 2, there has been a recognition of the Government support needed at different stages both in terms of upfront capital investment through the £1bn Green Industries Growth Accelerator⁵ and the plans to support developers in making more local and sustainable procurement choices through Sustainable Industry Rewards⁶ which are expected to be introduced from CfD Allocation Round 7. Despite the election, the hope is both schemes are continued or expanded by a new government.

However, on 3, I’m afraid more is required as we’re still taking a project-by-project approach to supply chain development and despite welcome Government funding to help get investment decisions over the line we risk failing to have the desired impact in the face of a lack of investment certainty. This is particularly the case following the failure of CfD Allocation Round 5 to bring forward any new offshore wind projects and with overly conservative reference prices for Allocation Round 6 only expected to bring forward a further 3-5GW, despite DESNZ increasing the auction price cap by 66% and setting a budget four times bigger than Allocation Round 5 at £800m. This potentially leaves Allocation Round 7 in 2025, the last CfD round with a delivery window to 2030, needing to do a lot of heavy lifting to keep any 2030 targets within reach.

In my five years at DESNZ offshore wind targets went from 30GW, to 40GW, to 50GW, all by 2030! According to RenewableUK’s Energy Pulse database⁷ the UK pipeline stands at around 90GW, which even with some attrition, should be more than enough to deliver a decarbonised power system.

So, the key questions in relation to any 2030 targets for a new government are A) how to maximise the number of projects getting through the consenting process to be eligible for AR7? and B) how to maximise the volume that can be delivered through AR6 and AR7 whilst still maintaining competitive tension and getting the best deal for consumers?

However, from a supply chain investment perspective 2030 is tomorrow and 2035 is next week! So what comes beyond that?

UK electricity demand is expected to double between now and 2050 as other parts of the economy are electrified. The Committee on Climate Change (CCC) estimates the UK will need up to 125GW of offshore wind by 2050.⁸ The UK has committed to a further 20-30GW of new seabed leasing by 2030 and wants a further 12GW of floating wind in the Celtic Sea.⁹ However, there is currently no clarity for the industry or the supply chain on the future level of government ambition post-2030 or a detailed forward schedule of seabed leasing rounds setting out what volumes will come forward where and when.

From a supply chain and cost perspective, one of the worst scenarios would be for a big glut of projects to all come through at the same time with no long-term visibility of what is coming afterwards. This would likely see the supply chain reluctant to invest for fear of overcapacity in the long-term, with projects competing for the same limited supply chain capacity in the short-term, pushing up prices and causing delays.

This is essentially what happened in seabed leasing round 3 in 2010, where 25GW of projects came forward all at once and then got mired in delays and planning challenges, some of which are still not delivered, and I would argue did relatively little for supply chain certainty. A risk we’re in danger of repeating with ScotWind.

So how do we avoid a cycle of ‘boom and bust’ for the sector?

Action on future leasing is needed to create longer-term forward visibility of a pipeline of de-risked projects. This would create certainty of demand for the supply chain and enable them to invest over the short-term and maintain the jobs they support over the long-term.

European offshore wind markets are leading the UK in terms of providing visibility of their future ambitions and leasing rounds. For instance, Germany has already established legal targets of 30 GW in 2030, 40 GW in 2035, and 70 GW in 2045.¹⁰ It has completed its Marine Spatial Prioritisation and identified areas of the seabed to be leased, with a forward plan of auctions to inform industry of the volume, timing, and location of leasing. German auctions also include the seabed lease, grid connection, and front-load site development, which reduces risk and accelerates delivery.

The UK is moving in a similar direction when it comes to thinking about grid alongside leasing and front-loading site development, with The Crown Estate’s welcome approach to Leasing Round 5 and beyond, following recommendations from the OTNR.¹¹

Looking to the future

However, we could go further and set out clear long-term targets per technology for 2035, 2040, 2045, and 2050 based on recommendations from the CCC, which can be in input into the creation of a Strategic Spatial Energy Plan (SSEP) led by the new National Energy System Operator. Any targets that are set will inevitably need to be revised periodically as factors change and the SSEP is updated, but importantly would give industry and supply chain a clear signal for delivering minimum annual capacity targets.

Minimum annual capacity targets could also enable a more mechanistic approach to the CfD allocation framework, with each auction having clear capacity targets per technology over a multi-year period with a budget to match. Competitive tension and therefore downward pressure on auction prices could be maintained by managing pipeline throughput, however this would ultimately still require each auction to be oversubscribed and for the pace of deployment to effectively be throttled. That said, as long as annual capacity targets are being met, maybe it’s a good thing for consumers that only the most competitive projects in each round secure a CfD?

This of course fails to recognise that any projects coming into the CfD auction will have already competed to win a seabed lease in the first place and have spent £10m’s in securing consent and will ultimately be displacing more expensive and polluting forms of generation. An alternative approach that maybe avoids being penny-wise and pound-foolish, taken from the report of the UK’s Offshore Wind Champion¹², could be to automatically award projects a CfD once they achieve consent, provided they can deliver under a certain price. The key challenge for Government would be in setting this price, which they have a lot of experience in doing, but Allocation Round 5 shows what happens when they get this wrong.

Either of these approaches could provide a step change in visibility and certainty to the supply chain allowing them to plan and make investments with the confidence that there will be a steady and reliable pipeline of projects coming through on an annual basis.

And the best bit, particularly for a new Government that may be fiscally constrained, is that providing more visibility and long-term certainty doesn’t cost anything additional.

The pieces of the jigsaw that have been missing thus far in preventing the UK from maximising the benefits from the green transition are starting to fall into place. However, to solve this particular puzzle we may need to borrow with pride from others who have had the benefit of learning from our mistakes.