UK wind/Dogger Bank: well, blow me down
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Oil company bosses are belatedly embracing renewables to appear cutting edge. The UK’s Dogger Bank offshore wind farm project puts their zeal in context. It is the world’s largest wind project. Planning started 10 years ago.
Erecting wind turbines is superseding well drilling as the activity defining the North Sea. Thursday’s official launch of Dogger Bank by joint venture partners SSE of the UK and Equinor of Norway matches the start of the huge Brent oilfield almost half a century ago. More wind farms will follow.
In the decade to 2019, EU countries such as the UK and Germany installed 22.1GW of offshore wind power capacity. Dogger Bank will produce a sixth of that, nearly 5 per cent of current UK electricity generation capacity. The partnership between the UK utility and the Norwegian oil group plans to spend £6bn on the first two phases.
Financial dynamics have moved in favour of Dogger Bank since the project began. Efficiency has risen. Turbines have tripled in size in the past decade to nearly 9MW. Capacity utilisation has climbed from about a third to sometimes more than half. Compared with competing energy sources, costs have dropped 28 per cent, says the International Renewable Energy Agency.
First power from Dogger Bank in summer 2023 should be well timed. Although internal real returns may start on the low end of the joint venture’s expected range of 6 per cent to 10 per cent, even that looks attractive with interest rates wallowing as low as the seabed in which turbine foundations rest.
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Steady investment returns will follow from predictable power pricing contracts, with little government subsidy. This should attract long-term institutional investors. The JV anticipates selling a tenth of the project’s equity before the year end, shortening the time needed to cover costs. These outside shareholders would hope for 5 per cent to 6 per cent annual nominal yields from their stakes over time, says Bernstein.
The government, a liberal producer of hot air, claims it will transform the UK into the “Saudi Arabia of wind”. In reality, private capital is already having that effect.
The Lex team is interested in hearing more from readers. Please tell us what you think of the Dogger Bank project in the comments section below.
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