Offshore wind is set to be a central part of the next UK government's ambitions to fully decarbonize the power sector. The Conservatives are targeting 2035 while the Labour Party aims for 2030.
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The UK's main political parties are campaigning on contrasting narratives about the economic reality of the energy transition ahead of the July 4 general election.
Polls show the opposition Labour Party has a 21-point lead over the ruling Conservatives, according to the latest BBC poll tracker, with 43% of average votes compared to 22%.
The Conservatives have been in power for 14 years. In that time, observers said the party has enshrined the UK's 2050 net-zero target into law, grown its offshore wind industry into the largest in the world outside China and generally supported decarbonization.
However, heading into the election, the Tories seem to be drawing a clear dividing line on energy between themselves and Labour, according to Rob Gross, director of the UK Energy Research Centre and professor of energy policy at Imperial College London.
"They're clearly opting for a more cautious approach," Gross said in an interview. "The political position they're taking at the moment is less enthusiastic than even a year ago about the positives of clean energy."
Under a Conservative government, the UK would still aim to meet its green targets but do so "in a way that saves [taxpayers] money," Prime Minister Rishi Sunak said in a June 4 televised debate with Labour leader Keir Starmer.
Sunak last year watered down a series of key net-zero policies, arguing that it would ease the burden on consumers. The Conservatives also plan to hold new oil and gas licensing rounds in the North Sea and want to build new gas-fired plants.
In contrast, Starmer called the energy transition a "huge opportunity" to reduce consumer bills, with renewables being cheaper in the long term and providing energy security. Labour has said it would not issue new oil and gas licenses and would introduce a "time-limited" windfall tax on fossil fuel companies.
The clash highlighted how the election campaign will be a "fight over costs" when it comes to energy policy, according to Adam Bell, director of policy at consultancy Stonehaven.
The Conservatives and Labour are aligned on net-zero by 2050 and have broadly similar ambitions for decarbonizing the power sector, with the Tories targeting 2035 and Labour aiming for 2030.
"There is an interesting missing bit of the debate about growth and what a more aggressive decarbonization trajectory would mean for growth," Bell said.
Offshore wind
One of the crowning achievements in the power sector during the Conservatives' 14 years in office has been offshore wind, which has grown from a little over 1 GW installed in 2010 to nearly 15 GW today.
The UK has "radically overperformed" on offshore wind, according to Bell, driven by the contracts for difference (CFD) auction mechanism that the Tories introduced during their first term in government.
For many years, the industry narrative was about getting project costs down below £100/MWh. That level now seems like ancient history, with the most recent offshore wind CFDs awarded in July 2022 at £37.35/MWh in 2012 currency.
But while the CFD has succeeded in reducing the cost of offshore wind, observers said the challenge for the next government will be to ensure new capacity is actually delivered. Some recent projects in the UK have come up against inflationary pressure and supply chain disruption.
"The economics of a lot of these projects are getting very, very marginal," said Robert Bates, partner and head of claims at insurance broker NARDAC. "There's a risk of competing away the gains that have been made."
As part of Labour's pledge to decarbonize the UK's power sector, the party wants to grow offshore wind to 55 GW by 2030, higher than the country's existing 50-GW target. A significant portion of that pipeline is still to be identified.
Ed Miliband, Labour's shadow energy secretary, has said floating wind will be a "first priority" for Great British Energy, the publicly-owned energy company the party intends to set up if it wins the election. Labour is aiming for 5 GW of floating offshore wind by 2030.
"A major thing will be infrastructure upgrades," Bates said about the obstacles that stand in the way of that rollout. "That will be a really big piece of the puzzle."
Bates recalled examples of floating turbines in Scotland having to be towed to Norway and the Netherlands "because there aren't enough ports available with the capacity to handle all these turbines."
It takes at least four years to build a new port, so if the 5-GW target is going to be reached, "they need to be doing it now," Bates said.
Great British Energy
Great British Energy is a central piece of Labour's election pledge, one of five long-term missions outlined by the party in recent months.
The company will be owned by the government and funded by up to £8 billion of public borrowing, with a goal to further raise three times that amount from the private sector.
The vision is for something similar to Electricité de France SA, Sweden's Vattenfall AB or Denmark's Ørsted A/S — state-owned or state-backed companies that invest in energy infrastructure.
In floating wind, GB Energy could play a similar catalytic role as the former state-owned UK Green Investment Bank took in fixed-bottom offshore wind when that technology was less mature, according to Gross.
"That would help to give the private sector some comfort and hopefully leverage private sector funding," Gross said.
Still, observers said a fine balance exists between plugging funding gaps and crowding out private capital — a charge frequently leveled at the Green Investment Bank before it was sold by the government to Macquarie Group Ltd. in 2017.
For less mature clean technologies, however, GB Energy is more likely to crowd in investment rather than crowd out, according to Gross.
"You can become overly concerned about arguments about crowding out and neglect the fact that most countries are pursuing green energy as a strategic industrial policy objective," Gross said.
He added that it is "perfectly legitimate" for states to intervene and pointed to the US, which is subsidizing the energy transition via tax credits as part of the Inflation Reduction Act.
Power market reform
Also on the next government's in-tray is a potential reform of the UK's power market.
The Conservative government launched the Review of Electricity Market Arrangements (REMA) in 2022, aimed at lessening the influence of gas prices on power price formation. The review, which includes a proposal for stronger locational signals in the power market via zonal pricing, is currently under consultation.
A new government would do well to close out REMA as soon as possible, according to Robert Ogden, founder and CEO of Renewable Exchange, a marketplace for power purchase agreements.
"We find clients in two camps. They either see REMA as too big a risk to do anything at all, so everything is on pause, or they need REMA clauses that allocate the risk away from them," Ogden said in an interview.
The problem is that, in an election year, little will be done in the near term to clarify the situation.
"A government could say, 'This is what we're looking at, but not until 2040,' punting REMA into the long grass, going for radical reform but delaying implementation," Ogden said.
"My view is we'll miss our opportunities if we do this," the executive added. "We need to build more grid, focus on solving bottlenecks, and not think we can solve this via some clever market dynamic. We can't."
A Labour government would be so focused on delivering its pledge to decarbonize the power sector by 2030 that REMA would "fall by the wayside," according to Bell.
"Labour's ambitions are so extensive that they can't afford the delay that market reform would involve," Bell said.