EU plans to cap wind revenues at 180 euros/MWh; U.S. targets floating wind at $45/MWh

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EU plans to cap wind power revenues at 180 euros/MWh this winter

The European Union executive has unveiled plans to limit revenues from wind, solar and nuclear power generation to 180 euros/MWh ($180/MWh) until March.

The move caps revenues at less than half the current market prices, but far above the running costs of most generators affected, the European Commission (EC) said on September 14.

The EU is looking to curb the impact of soaring gas prices on electricity markets following Russia's invasion of Ukraine.

Under the scheme, excess revenues would be clawed back from power generators by national authorities and spent on measures that mitigate soaring prices, such as energy efficiency incentives, or lower energy bills. The proposal would raise 117 billion euros, the EC said.

The cap applies to long-term commercial power purchase agreements (PPAs) that are affected by current wholesale prices but does not apply to revenues made from government subsidy schemes such as the contracts for difference (CFDs) widely used for wind power projects. Most recent long-term fixed price wind contracts and subsidies have been signed at prices far below 180 euros/MWh following years of cost reductions in wind technology.

National governments would be permitted to impose a lower national limit on revenues if it sufficiently covers costs and does not deter investments, the EC said, a move opposed by industry group WindEurope.

“Investors need visibility. So an EU-wide cap on revenues from wind should be precisely that – a single EU-wide cap," said WindEurope CEO Giles Dickson. "Allowing countries to deviate from it and have lower caps creates confusion and uncertainty – and will slow down the investments we so badly need."

The EU's proposals also include a binding target to decrease electricity demand during peak hours by at least 5%.

EU member states will negotiate the measures and an agreement could be struck by energy ministers on September 30.

                            Average power prices in international markets

                                                                      (Click image to enlarge)

Source: European Commission's Quarterly Electricity Market Report, Q1 2022.

Support for energy price caps from EU members has been growing as the cost of consumer protection measures implemented by national governments continues to rise. EU countries have spent 280 billion euros in the last year to shield consumers from energy costs, according to the think-tank Bruegel.

"The skyrocketing electricity prices are now exposing the limitations of our current market design...It was developed for different circumstances," EC president Ursula von der Leyen said in late August.

"That’s why we are now working on an emergency intervention and a structural reform of the electricity market."

UK caps business electricity prices with subsidy

The UK will cap wholesale electricity and gas costs for businesses at less than half the market rate this winter to protect companies from soaring wholesale market prices, the government announced September 21.

Electricity prices will be capped at around 211 pounds/MWh ($239/MWh) and gas at 75 pounds/MWh, compared to forecast market rates of 600 pounds/MWh and 180 pounds/MWh respectively.

Suppliers will be compensated for the reduction in unit prices they are passing on to business customers.

"We have stepped in to stop businesses collapsing, protect jobs and limit inflation," finance minister Kwasi Kwarteng said.

On September 8, new British Prime Minister Liz Truss announced annual household energy bills would be frozen at 2,500 pounds this winter, based on typical use, far lower than the 3,549 pounds expected in October under current consumer price regulation.

Gas and electricity prices have rocketed following Russia's invasion of Ukraine, pushing households into fuel poverty, slicing company profits and accelerating inflation.

The UK government has responded by partially subsidising customer bills rather than clawing back revenues from electricity generators and gas suppliers.

                                   UK electricity generation by fuel type

                                                                   (Click image to enlarge)

Source: UK Department for Business, Energy and Industrial Strategy (BEIS), 2021.

Earlier this year, the UK government raised its offshore wind target by 10 GW to 50 GW by 2030 and pledged faster onshore wind and solar build in a new energy security strategy that could see 95% of power from low carbon sources by 2030.

White House targets floating wind costs of $45/MWh

The Biden administration has launched a new research and development (R&D) initiative to reduce floating wind costs by 70% to $45/MWh by 2035.

The U.S. will aim to install 15 GW of floating wind capacity by 2035, the White House said in a statement on September 15.

President Biden has already pledged to install 30 GW of offshore wind by 2030 but this will mostly consist of fixed-bottom projects on the East Coast. Pacific Coast waters are too deep for fixed-bottom technologies, requiring floating wind platforms.

Floating wind is an emerging technology and developers in Europe are planning to step up from pilot windfarms to commercial arrays in the coming years. The UK aims to install 5 GW of floating wind by 2030 and France, Spain and Portugal are also rolling out commercial scale tenders.

Installation learnings and economies of scale will drive down costs and the target set by the Biden administration is lower than previous forecasts by market observers.

                                  Global floating wind cost forecasts  

                                                                (Click image to enlarge)

Source: U.S. Department of Energy's Offshore Wind Market Report (2021)

The Biden administration will apply its Energy Earthshot R&D program to accelerate improvements in floating wind technologies and cut costs.

Research will focus on "manufacturing, engineering, and continued increases of offshore wind turbine capacity," it said.

Last month, California set a new offshore wind target of 2 to 5 GW by 2030 and the U.S. Department of Interior plans to sell five offshore wind leases off the coast of California later this year.

The federal Bureau of Ocean Energy Management (BOEM) has opened a public consultation for five areas in Morro Bay in central California and Humboldt Bay in the north. Activity is also spreading north into Oregon following a call for interest in waters in the south of the state.

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