Will hard Brexit derail UK offshore wind deal?
With Brexit due in three weeks’ time, it felt like a good time to look again at Brexit and its potential impacts on wind.
Last month, I received an email from the UK government’s Home Office that invited me to take part in the last phase of testing to apply to settle in the UK.
Less than two days later, I was given ‘indefinite leave to remain’ – my ‘settled status’. I didn’t expect to feel so relieved to receive that confirmation.
I’ve been living, working and paying taxes here for over five years. When I arrived, I didn’t even have a passport – I used my Italian ID card to travel – and now I need a piece of paper to be granted the right to stay. I won’t lie, it’s a weird feeling.
With all these mixed feelings going on and Brexit due in three weeks’ time, it felt like a good time to look again at Brexit and its potential impacts on wind. In particular, I read with interest a report published this week by consultancy Wood Mackenzie on the potential consequences of hard Brexit on the UK offshore wind sector.
Hard Brexit means the UK would leave both the European Union’s single market and customs union. Analysts, economists and financial institutions, including the Bank of England, have all been warning against the catastrophic effects of hard Brexit across all industry sectors.
The report says that hard Brexit wouldn’t hit offshore wind as badly as other industry sectors, but it won’t be pain-free. This is mainly because around 68% of the offshore wind supply chain is currently sourced from non-UK based firms. In a hard Brexit, the non-UK based supply chain would face an average trading tariff of 2.7% as well as a significant degree of uncertainty over other factors, which – the report admits – are impossible to quantify.
These include reduced access to both skilled and unskilled labour; uncertainty and volatility of the pound; and extra challenges caused by the current lack of customs processing infrastructure in the UK.
We could see the most immediate consequences in the UK government’s upcoming Contract for Difference auction, which it is due to launch on 29th May.
The proposed draft budget for the auction is £60m, with a capacity cap of 6GW. Potential import tariffs and surrounding uncertainties could cause a drop in the capacity awarded in the auction, as they would increase actual construction costs and weaken the initial evaluation of projects’ financial performance.
There is room for optimism about offshore wind. The UK government will need to keep the lights on even after Brexit, and offshore wind is set to play a key role. The UK’s existing nuclear reaction fleet is ageing and new nuclear plants are proving to be problematic to build, and offshore wind can play a key role in filling that gap.
This is where the UK government’s new offshore wind sector deal comes in. Finally announced yesterday, this deal has set a target to triple UK offshore capacity to over 30GW by 2030 from 8GW now and triple the number of highly-skilled offshore wind jobs in the UK to at least 27,000. It was conspicuously silent on Brexit, though – and has also been criticised by the likes of Greenpeace and Greencoat Capital’s Richard Nourse for lacking ambition. Most in offshore wind appeared to welcome the deal.
The Wood Mackenzie report says that the greater clarity on Brexit that we will have by 29th May could also mitigate its fears for the upcoming CfD auction.
But that depends on what happens in key votes in the next week and the rest of this month. We are approaching Brexit day (29th March) with little idea of whether we’re heading for hard Brexit, no deal Brexit, a delayed Brexit or, possible, no Brexit at all. The last three years have been a confused attempt to make sense of the 2016 vote.
The truth is that any form of Brexit is set to be hard to some degree for every part of the economy, wind included, and for everyone living here. The UK is in uncharted waters and Theresa May’s government hasn’t proven to be a competent captain.
I could be wrong, though. The UK economy might prove to be resilient enough to any Brexit shock. Now I’ve been granted the right to remain undefinedly, I really hope so.