UK Election Update: What a Labour Government means for Offshore Wind

By: Jordan May

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03/07/2024 4C

Current polling, although never perfect, suggests that Labour will win a convincing majority in UK parliament on 4 July. The would-be Prime Minister, Keir Starmer, and Secretary of State for Energy Security and Net Zero, Ed Miliband, have made a series of promises relating to planning, the grid, supply chains, and job creation which Miliband has labelled the ‘four horsemen of the apocalypse’.
What does this mean for offshore wind?

Targeting 55 GW
Labour will increase the 2030 offshore wind target from 50 GW to 55 GW. To date, 53.9 GW have applied for consent, with a further 10.8 GW (assuming maximum project size) expected to apply by end-2024, the last opportunity to be able to receive consent before Allocation Round (AR) 8. Allocation Rounds usually allow 50% of available capacity through, which, assuming all projects apply for a receive timely consents, would give the UK over 50 GW of allocated capacity by AR8. Labour is rumoured to increase the capacity awarded via allocation rounds but would need to push for ~65% clearance to theoretically meet its target.

Speeding Up Planning?
Furthermore, with 1.5 million homes to be planned and built (approximately double the rate of recent years according to ONS), the Planning Inspectorate could see a shortage of resources, further delaying other infrastructure projects such as offshore wind. While Nista could alleviate the problems this creates, it is not apparent that offshore wind will see a benefit; it may even suffer as a result.

Labour also plans to introduce new consenting targets and a decision time monitoring framework which aims to reduce the time projects spend waiting for the government. The main job of the Planning Inspectorate is to guarantee that the consent is legally defensible which takes time. There is no guarantee that changing the timeline will have a net effect on timelines if there is an increase in contested consents.

Labour have stated their commitment to changing the planning system, and are aware of the key flaws, including the fact that planning applications only allow negative feedback. Labour aims to bolster community consent by allowing communities to benefit directly via cheaper bills or other compensation. Community benefit could offer a more efficient consenting process where authorities spend less time processing consultation complaints.

GB Energy: Rewiring Britain?
Labour aims to ‘rewire Britain’ by collaborating with the FSO, the publicly owned future owner of the UK grid which will take effect in 2025/26. Under this collaboration Labour would tender out any grid upgrades, and have a new publicly owned company, GB Energy, bid into the tenders. GB Energy would invest GBP 8.3 billion over the next five years in renewable energy projects and the grid. For energy projects, GB Energy would invest in projects with the intent to crowd-in private investment, rather than crowd it out. GB Energy would also compete in the FSO tender, though likely only functioning as a backstop to make sure the tender doesn’t fall through.

GB energy is one of the most controversial points in Labour’s manifesto and can be seen to reflect two very different approaches to state investment. In Nordic countries, it is common to see the state take a share in energy projects. This has made the countries very rich from oil money and has not negatively impacted the projects either. In the UK, the government started the Green Investment Bank (GIB) in 2012, which invested GBP 3.4 billion in green energy projects (GBP 2.2 billion in offshore wind) alongside GBP 8.6 billion of private capital (GBP 4.7 billion on offshore wind). While GIB crowded-in private investment, it is still undetermined if GIB addressed any market failures. GIB was sold to Macquarie in 2017 and is now called Green Investment Group (GIG).

Offshore wind was very immature in 2012, with the clearing price of the first allocation round in 2014 being GBP2012 114.29/MWh. Public investment offered a substantial push to crowd-in private investment in a risky and emergent sector. Today, there is no shortage of private investment, with RWE recently spending GBP 1 billion to acquire three UK projects. If Labour intends to return from offshore wind profits to the treasury, then this follows the Nordic model and can be beneficial for the nation. If the plan is instead to attract investors, the results could be mixed. In the case of bottom-fixed offshore wind, the investment pool is already saturated, meaning some private capital will be forced out. There is likely a shortage of capital for floating wind; for example, key player Ørsted announced in February that it will pursue a “leaner floating offshore wind” portfolio. A 4.5 GW Leasing Round is due to conclude this year. GB Energy can make a difference in this space.

Renewables are highly flexible in their generation, and therefore the grid needs to be designed around this. Labour would investigate measures to promote ‘smart demand management’ and targeted renewable construction in areas with power imbalance. While neither of these policies will directly impact offshore wind, a more balanced grid prevents the need to change the way electricity is priced. A proposal in the government consultation, Review of Electricity Market Arrangements (REMA), sees the UK switch to a regional pricing system, where electricity is priced differently in large regions, e.g. Scotland has one price and England has another (example only, regions undecided). This would result in the region which contains the North of Scotland having lower electricity prices due to the massive generation potential, and therefore damaging the potential returns of offshore wind, especially the ScotWind and INTOG projects.

Supply Chain
Labour will establish a National Wealth Fund, which will invest GBP 1.8 billion on upgrading ports across the UK with a view to enable floating development. The fund will also invest GBP 2.5 billion in the green steel industry. The fund will be public capital, to be invested alongside private capital.

In the upcoming AR 7, developers will need to invest in UK manufacturing and decarbonisation to qualify. Developers who offer the best solutions with the best value for money will receive government support, which may not cover the full cost of the investment. Should developers only request partial support, the government would offer public capital alongside public investment. This scheme was put in place by the Conservatives and will last for at least three Allocation Rounds, offering potentially billions in investment (the budget is not yet announced). Furthermore, having spoken to port owners at a recent conference, the owners have not been told if the wealth fund would directly invest in ports, or use the existing schemes to make up a large section of the funding. While large investments in local manufacturing and installation capacity can offer cost reductions to offshore wind, and huge savings to floating wind, the amount of new investment by the government could be less than advertised.

Jobs
Labour will not offer any more oil and gas licenses during its parliament, and 180 fields are expected to come offline during the next 10 years. A lot of staff with invaluable offshore experience will be entering the job market. To keep these workers and recruit more to the sector, Labour is offering a ‘British Jobs Bonus’ that would invest £500 million per year from 2026 to 2029. Companies that offer good pay and conditions in supply chains, coastal areas, energy communities, and industrial heartlands could receive funding.

4C estimates that Britain will have less than 40 GW of capacity by 2030, much larger than the 14.8 GW of generation currently commissioned. The planning, construction, and maintenance of the upcoming generation will undeniably need a reinforcement of jobs. The potential mass transfer of oil and gas jobs can provide a much-needed boost to the sector and well-paying jobs can attract people from outside the sector.

Floating Wind: A Taxing Issue
The Energy Profits Levy, a 35% tax on oil and gas profits, has a generous investment allowance, such that first year decarbonisation capital expenditure offers 109.25% tax relief. Investment in floating wind for decarbonisation would be covered under this scheme and offers a potential route-to-market for floating wind. Labour is extending the end date of this policy till the end of Labour’s parliament, which would see projects, such as Green Volt, potentially benefit if the Buzzard oil field were to invest (e.g. purchase the export cable for the project). However, Labour will remove the capital allowances which offer a potential route-to-market for floating wind.

4C’S Forecast
In the UK, under current policies 4C Offshore currently models that 37.4 GW will be commissioned or in construction by 2030, falling short of even the current target. The shortfall in this forecast comes from attrition, supply chain constraints, and delays expected or experienced.
If Labour secures power in the general election, it will bring ambitious goals to Downing Street, but ambition must always be tempered by the reality of the market, the supply chain, and the economy. Change is coming, but how impactful it will be remains to be seen.

For more information about offshore wind farm projects across the globe, click here.

About the Author

4C Offshore | Jordan May
Jordan May

Market Analyst

01502 307037 jordan.may@tgs.com
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