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The world's largest offshore wind farm could be cheaper than coal

The world's largest offshore wind farm, planned off the coast of England, is likely to produce cheaper electricity over the next decade than coal.

In a series of offshore wind projects, contracts were signed for the sale of electricity at guaranteed prices in the UK Auction Friday. The price of 39.65 pounds per megawatt hour (around R740) was 31% below the level at a similar auction two years ago.

The slump shows how offshore wind, which only a few years ago was more expensive than nuclear reactors, is changing the economics of energy around the world. Both utilities and increasingly energy companies plan to spend $ 448 billion on capacity by an eightfold increase by 2030, according to the BloombergNEF, and will have the capacity to produce up to 5.5 gigawatts of power, the government said. This includes a joint SSE Equinor project off the east coast of England to build the largest single offshore wind farm in the world.

"Today's auction results show that offshore wind is in line with current electricity prices – it is already competitive with existing fossil fuel power plants, let alone new fossil fuels," said Deepa Venkateswaran, an analyst with Sanford C. Bernstein & Co. in London , "In the next auction in 2021, the costs will be well below those of existing fossil fuel plants."

One of the profit zones known as the Dogger Bank is off the Yorkshire coast. Three Equinor and SSE projects were approved in the zone for a total generation of 3.6 gigawatts. Another 1.4 gigawatt project developed by Innogy has also been approved in the same area.

Key Step

Equinor's success in the auction is a key step on the road to becoming a broader energy company than just an oil and gas major. The state-controlled Norwegian company has set itself the goal of investing up to 20% of its capital in new energy solutions by 2030.

"Dogger Bank positions Equinor along with the most recent award for Empire Wind in the US as offshore Windmajor," said Pal Eitrheim, Equinor's EVP for new energy solutions. "These projects offer economies of scale and synergies and make us even more competitive in offshore wind turbines worldwide."

SSE will accelerate its shift from a traditional power company to an energy company focused on renewable energy and grids. The Scottish company has agreed to sell its UK utility business to Ovo Energy.

The agreements give the projects a guaranteed buyer through a so-called contract difference mechanism. If the wholesale price is below the specified price, the government pays the developer the difference. If it's higher, the company pays it back. British month-ahead electricity is trading at 42.05 pounds per megawatt hour, down 34% this year.

Even though wind energy is no longer dependent on government subsidies, contracts could play an important role in the future. The guarantee helps developers secure financing and makes assets more attractive to institutional investors who want reliable returns. The next British auction round is scheduled to take place in 2021.

The Crown Estate plans to open Thursday's first competition in a decade for sites on the UK coast that could bring up to £ 20 billion in offshore wind investments.

For Sale

The contracts also give investors the opportunity to participate in some of these projects. Earlier this year, Iberdrola sold a stake in its 714-megawatt East Anglia One project to Macquarie Group Ltd. for £ 1.63 billion (R30 billion). Projects based on government-sponsored sales contracts are often more attractive to investors who prefer guaranteed prices.

According to Richard, Innogy is likely to sell a stake in the 1.4-gigawatt Sofia offshore wind farm development in Dogger Bank area Sandford, the company's director of offshore investment and asset management. The company has not yet decided how much it will sell, but plans to make a final decision next year. SSE also announced it would sell a stake in a 454 megawatt project in Scotland for which it won a bid for the auction.

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