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U.K. Offshore Wind Developers Able to Cut Costs With Tie-ups

Offshore wind developers in the U.K. will be able to meet a state target of lowering power costs 30 percent in 2020 by forming industry alliances, according to a group backed by companies including Alstom SA (ALO) and Siemens AG.

A U.K. plan to cut costs to 100 pounds ($155) a megawatt- hour by 2020 from 140 pounds is achievable, the Offshore Wind Cost Reduction Task Force, also including Vestas Wind Energy Systems A/S (VWS) and Gamesa Corporacion Tecnologica SA, said today.

That could save more than 3 billion pounds a year, wind power trade lobby RenewableUK and the U.K.’s Department of Energy and Climate Change said in a joint statement.

“It’s essential that industry recognizes and acts on the need to bear down costs to provide long term protection to consumers from volatile fossil fuel prices,” Energy Minister Charles Hendry said today at a conference.

Prime Minister David Cameron set up the taskforce in 2011 to help make offshore wind competitive with energy like nuclear power and curb household bills. The U.K. plans 18 gigawatts of offshore turbines by 2020 from about 1.9 gigawatts currently.

Developers and equipment suppliers should use “more efficient contracting” to cut the cost and risk of installing turbines, the taskforce said. The approach borrows from the experience of North Sea oil and gas companies that shared expertise to cut capital costs as oil prices fell in the 1980s.

The group also recommended creating a body with government and industry members to address possible bottlenecks and delays.

Tough Timeline

“The timeline is tough so the taskforce must now work on implementing the ideas in their report,” Benj Sykes, director of U.K. wind operations at Dong Energy A/S, said in a statement.

The “lion’s share” of early investment will come from foreign companies that may manufacture in the U.K., Hendry said.

Britain in January 2010 awarded licenses for 32 gigawatts of generation in its third round of offshore wind tenders, with plans to begin installations in about 2015. The Centre for Economics and Business Research said in a report commissioned by Irish wind developer Mainstream Renewable Power Ltd. that “aggressive” development may create 215,000 jobs by 2030.

The use of larger, more efficient wind turbines may reduce costs, said the Crown Estate, which manages the U.K.’s seabed.

The estate said today in a report that greater competition among suppliers and improvements in technology may also help spur a 39 percent drop in electricity costs by 2020. Vestas and Siemens are developing 6 or 7-megawatt turbines for use at sea.

Deal structures for offshore projects should be simplified, and credit ratings agencies and insurers engaged to increase confidence in the industry, according to the taskforce.

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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