Rising prices for steel and other materials have driven up the cost of wind turbines by a fifth in two years and risk increasing the cost of electricity from new projects, the industry has warned.
Offshore wind power developers are calling on the government to raise the budget of an auction to support new projects this month. Otherwise it may not be feasible to invest in UK factories.
RenewableUK, the lobby group, says a few per cent on the price of electricity from new projects would mean it was still cheaper than gas-fired generation.
The UK has a target of 50 gigawatts (GW) of offshore wind operating by 2030, up from about 10 GW today.
The government encourages investment by guaranteeing a fixed price for the electricity. A reverse auction decides how many projects get the go-ahead and at what price. The most recent, in 2019, saw the price fall to a record low of £39.65 per megawatt-hour (MWh) in 2012 prices, down from £150 in 2014.
Dan McGrail, head of RenewableUK, said the £200 million annual budget in the next auction was expected to procure about 6.4 GW of offshore wind at about £38 per MWh.
However, the cost of steel used to make turbine towers and foundations has surged. The contract price needs to increase again by “a couple of pounds” or else it may be too low to “support supply chain development in the UK”.
And if developers seek higher prices but the budget is unchanged, this could result in less capacity being built. RenewableUK said that increasing the budget by £68 million would both enable developers to recoup higher costs and support the construction of 2 GW more than originally expected.
A government spokesman said it was “expected to secure more cheap renewable energy capacity than the previous three rounds put together”.