1. Market Overview
In the short and medium term, strong growth is expected in the offshore wind sector, with a slowdown in the onshore sector. Important market drivers and obstacles include:
- Falling cost of wind energy
- Rapid expansion of offshore wind power
- Difficulties with nuclear power expansion
- Coal exit
- Uncertain impact of Brexit
- Shortage of skilled workers
- Reduced subsidies
2. Political Objectives
Target share of renewable energy in 2020 will be exceeded
The British have set a target of increasing the share of renewable energies in total energy consumption to 15% by 2020. According to the latest data available, renewable energies accounted for 10.2% of total energy consumption in 2017. As early as 2016, the Energy and Climate Change Committee warned the government that the overall target of 2020 might not be reached. The targets (30% renewables, mainly wind power) will likely be exceeded in electricity generation only. In 2018, renewable energy already accounted for about one-third of electricity generation, half of which came from wind power (17% of total electricity generation).
United Kingdom: Share of renewables in total energy consumption (in %)
Source: Department for Business, Energy & Industrial Strategy (BEIS)
British are leaders in offshore
According to the latest ranking of the Global Wind Energy Council (GWEC), the UK ranked sixth worldwide in 2017 (onshore and offshore) with a total installed capacity of about 19 GW. In the offshore segment, the British are world leaders with a capacity of around 7 GW. According to GWEC calculations, 36% of the world’s offshore capacity was installed in the UK in 2017.
The most important source of electricity is natural gas, with a share of 39% in 2018, followed by nuclear power (19%) and wind power (17%) in third place. Wind power will overtake nuclear power in the coming years. Coal still plays a role in electricity generation in the UK, accounting for 5% of energy generation, but the last coal-fired power plants will be shut down by 2025.
Scotland leads the way in British energy transformation
The regions of Wales, Scotland, England and Northern Ireland have different approaches to the expansion of renewable energies. The Scots are considered particularly ambitious in the area of sustainable energy supply. According to the Scottish government, by 2020 renewable energy sources will generate all the electricity consumed locally. According to estimates, these sources have already reached 69% as of 2017. According to the Scottish government, by 2030 half of total energy consumption should come from renewables, electricity generation should be CO2-neutral in the long term and a special focus will be placed on wind energy (on- and offshore).
National energy plan to be examined by Brussels
At the end of 2018, the British published the first draft of the National Energy and Climate Plan (NECP), which is used by the European Commission to review compliance with energy and climate targets for 2030. The NECP summarizes the most important government programs (including the Clean Growth Strategy and the Clean Growth Grand Challenge adopted in 2017). Of importance for the wind energy industry are plans to expand electricity connections to other EU countries as well as the government’s strategy to promote a low-carbon economy through investment and innovation. Investments in the energy sector worth 900 million pounds sterling (over EUR 1 billion) are planned for the period 2015 to 2021. The focus is on further reducing the costs of renewable energies. Innovations such as floating wind turbines are also gaining interest for the future.
3. Market Organization
Six companies dominate the market
Six large private energy suppliers (the “big six”) dominate the market. These are: British Gas, EDF Energy, E.ON UK, Npower (parent company: RWE), Scottish Power (parent company: Iberdrola) and SSE. Smaller utilities include Co-operative Energy, First Utility, Utilita and Utility Warehouse, Green Star Energy and Bulb.
The regulatory authority in the UK (England, Wales, Scotland) is the Office of Gas and Electricity Markets (Ofgem). The UK’s high-voltage electrical transmission grid is operated by National Grid (http://www.nationalgrid.com/uk). The regulator overseeing Northern Ireland is Utility Regulator (http://www.uregni.gov.uk). Northern Ireland Electricity Networks is responsible for electricity transmission and distribution in Northern Ireland. (http://www.nienetworks.co.uk/home)
In England and Wales, wind farm projects of more than 50 MW are considered “significant infrastructure projects of national importance” and must be approved by the Planning Inspectorate (www.infrastructure.planninginspectorate.gov.uk). Under the Town and Country Planning Act of 1990, local planning authorities are responsible for smaller projects at the city or municipal level. Major projects in Scotland must be approved by the government (http://www.scotland.gov.uk/Topics/Business-Industry/Energy/Infrastructure/Energy-Consents). Local planning authorities are responsible for smaller projects in Scotland.
The Office of Gas and Electricity Markets (Ofgem) operates a tender portal, the Ofgem Tender Portal, for offshore electricity transmission, as well as the Offtaker of Last Resort Backstop Power Purchase Agreement (BPPA, www.ofgem.bravosolution.co.uk/web/login.html). The BPPA is a government program to support eligible generators through Power Purchase Agreements (PPAs).
Repowering and projects for industrial customers create business opportunities
The British wind market will remain attractive in the upcoming years. This is confirmed by the current Renewable Energy Country Attractiveness Index (RECAI) of the consulting firm EY. In the last edition (autumn 2018) of the rankings, the UK came in eighth overall in renewable energy sources. For offshore wind, the British ranked first, and for onshore wind, fifth. According to the study, there are interesting business opportunities in repowering old turbines and in merchant wind power, the construction of wind turbines on industrial sites and the sale of electricity to landowners.
The list of offshore projects that have already been planned and approved is extensive (see table below). The current project pipeline amounts to more than 12 GW.
United Kingdom: largest wind projects
|Project name||Capacity (MW)||Company||Status||Investment (in EUR millions)|
|Doggerbank Creyke Beck A and B; Sofia Offshore Wind Farm||3,600||Dogger Bank Wind Farms (Joint Venture between SSE and Equinor (formerly Statoil))||Planned start of construction: 2022||N/S|
|Hornsea Three Offshore Wind Farm||2,400||Orsted UK (formerly Dong Energy)||Plan submitted in May 2018||5,600 – 8,900|
|Hornsea Two Offshore Wind Farm||1,400||Orsted UK; supplier: Siemens Gamesa||Under construction, planned commissioning: 2022||2,900|
|Hornsea One Offshore Wind Farm||1,200||Orsted UK/Global Infrastructure Partners; suppliers: Siemens Gamesa and EEW Group||Under construction, planned commissioning: 2020||3,100|
|East Anglia Three Offshore Wind Farm||1,200||Scottish Power Renewables (belongs to Iberdrola Group)||Planned start of construction: 2022||N/S|
|Moray East Offshore Wind Farm||950||Moray Offshore Windfarm (East) Ltd. (syndicate between EDPR UK Ltd, Diamond Green Ltd and ENGIE)||Planned start of construction: 2019, planned commissioning: 2022||2,900|
|Triton Knoll Offshore Wind Farm||860||Innogy Renewables UK Ltd and partners: J-Power, Kansai Electric Power. Information for suppliers: http://www.tritonknoll.co.uk/supply-chain/||Under construction, planned commissioning: 2022||1,800|
|Neart na Gaoithe Offshore Wind Farm||450||EDF Renewables UK. Information for suppliers: https://nngoffshorewind.com/suppliers/||Planned commissioning: 2022||2,200|
Source: author’s research
Market opportunities for foreign companies are considered favorable in all segments of the value chain (consulting, plant construction, supply, repowering, etc.), but competition is fierce in both onshore and offshore wind power. Added to this is the uncertainty caused by the imminent Brexit.
Tenders replace former support measures
In the UK, support for renewables through feed-in tariffs will expire on 1 April 2019. Until then, wind turbines with a capacity of less than 5 MW can receive feed-in tariffs. Thereafter, the Contract-for-Difference (CfD) tenders will remain the only funding instrument. Introduced in 2014, the CfD tenders have so far supported 42 renewable energy projects with a total capacity of 10 GW, including 7.5 GW in the offshore wind sector. Onshore wind farms with a capacity of 750 MW were also supported by the CfD process.
These auctions are held for projects with capacities over 5 MW. A CfD is a contract between a low-carbon electricity generator (nuclear, gas, biomass, hydro, wind and solar power) and the state-owned Low Carbon Contracts Company (LCCC). The idea behind the CfD is that the Ministry of Energy pays the difference between the market price and the strike price for the green investment.
The developers of onshore wind farms can negotiate power purchase agreements (PPAs) with energy suppliers. The third CfD tender round, expected to take place in May 2019, will include only offshore and onshore wind power on small remote islands such as Orkney, Shetland and Western Isles.
Further information on the CfD remuneration system can be found at: https://www.gov.uk/government/publications/contracts-for-difference/contract-for-difference
5. Market Barriers
Shortage of skilled workers is a major challenge
Despite optimal wind conditions and market prospects, the industry is also facing challenges in the UK. Companies are complaining loudly about the shortage of skilled workers, which could worsen after Brexit. Environmental requirements (including the protection of birds) can delay projects for years. There is also public outcry against rural wind turbines which would disrupt the landscape.
At present, it is still unknown to what extent the trade in goods and services for foreign companies will be restricted or made more expensive due to Brexit. For suppliers, the British government has published guidelines for the classification of various goods in the event of a “no-deal Brexit” at http://www.gov.uk/government/publications/classifying-your-goods-in-the-uk-trade-tariff-if-theres-no-brexit-deal/classifying-your-goods-in-the-uk-trade-tariff-if-theres-a-no-brexit-deal.
It is also still unclear for energy traders and suppliers as to whether sales of electricity from renewable sources from the UK will be accepted. In principle, the UK could redefine its own energy targets after Brexit, but experts expect the industry to nevertheless grow in all Brexit scenarios.
6. Local Industry Structure
Important players in the wind industry are present
As the UK is by far the largest offshore market worldwide and an important onshore market, all major industry players are present. According to the latest survey by the National Statistics Office (ONS) for 2016, more than 4,500 companies with around 14,000 employees were active in the sector. Industry sales amounted to 6.3 billion pounds sterling (EUR 7.7 billion) and were almost equally distributed between the onshore and offshore sectors. They accounted for over 70% of sales in the whole renewable energy sector.
Major project developers include Orsted (formerly Dong Energy, Denmark), ScottishPower Renewables (Glasgow) and E.ON. British producers of small wind turbines (microgeneration) include Britwind (Ecotricity) and Marlec Engineering. SEM Motors produces electric motors in Dartford. CSWind UK (Scotland) manufactures onshore and offshore towers. ABB, Alstom and Siemens are among the leading companies in the field of electrical infrastructure. Siemens Gamesa Renewable Energy UK manufactures rotor blades for wind turbines in Hull.
|Office of Gas and Electricity Markets (Ofgem)||http://www.ofgem.gov.uk||Energy market regulator|
|Department for Business, Energy & Industrial Strategy||http://www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy||Ministry responsible for renewable energies|
|National Infrastructure Planning||https://infrastructure.planninginspectorate.gov.uk||Planning authority responsible for infrastructure projects in England and Wales|
|RenewableUK||http://www.renewableuk.com||Trade association for renewable energies|
|Energy UK||https://www.energy-uk.org.uk||Trade association|
|The Crown Estate||http://www.thecrownestate.co.uk||Property management|
|All-Energy Exhibition & Conference||http://www.all-energy.co.uk||Trade fair in Glasgow, Date: 15-16 May 2019|