Offshore wind requires Contracts for Difference – not subsidies

Between projects cancelled or abandoned in the US and the UK, several auctions foregoing bidding interest, massive impairments booked by utilities, major contractors bleeding cash, the news appear to have been unrelentingly bad. This has led some to questioning whether the sector can materially contribute to the transition towards renewable energy.

However, the doom has been overplayed.

Some of the problems are temporary, as the sector had to deal with unusual volatility in the prices of the three biggest drivers of its business case – commodity and industrial prices on the cost side, power prices on the revenue side, and interest rates, which heavily influence investment decisions in a capital–intensive industry.

Higher supply and financing costs have made the average long-term cost of generating electricity from new projects more expensive today than it was two years ago, and this has created challenges for developers relying on sales contracts with fixed prices, set sometimes years ahead.