Floating Offshore Wind and Contracts for Difference

Selaine Saxby Excerpts

Thursday 23rd May 2024 Westminster Hall

[Selaine Saxby (North Devon) (Con)]

I beg to move,

That this House has considered floating offshore wind and Allocation Round 6 of the Contracts for Difference scheme.

It is a pleasure to serve under your chairmanship, Sir Philip. I thank the Backbench Business Committee for allowing time for the debate and the Minister for agreeing to continue it despite yesterday’s announcement. This topic will be ongoing, regardless of what happens over the summer. I also thank the Department, the Minister and the rest of the ministerial team for their ongoing engagement on the issue, and for increasing the administrative strike price for allocation round 6, which I will refer to as AR6.

The industry welcomed the administrative strike price for AR6, with the uplift of £60 from £116 per MWh to £176 per MWh, demonstrating that the Government have listened to the industry and signalled a policy change that acknowledges the changing economic landscape for developers. Following the Climate Change Committee’s recommendations, floating offshore wind, which I refer to as FLOW, is set to make up to 5 GW of our energy generation by 2030 and 50 GW by 2050. The UK is a leader in FLOW, having the largest pipeline of floating projects globally, with leases of 33 GW and two pioneer projects in Scotland—Kincardine and Hywind.

FLOW has the potential to bring 29,000 jobs and £43.5 billion in gross value added to the UK by 2050, a prospect that should fill us with optimism. We need to ensure that we are ahead of the curve and not just deploying this technology for energy generation, but harnessing its full potential by developing the manufacturing element. However, all that is technically feasible only if we develop FLOW at a large scale. To do so, we need port investment from FLOWMIS—the floating offshore wind manufacturing investment scheme—and, most importantly, a co-ordinated strategy with stepping-stone projects to make that happen.

As chair of the all-party parliamentary group for the Celtic sea, I will make a strong case for FLOW in that region. I have had significant input from Professor Deborah Greaves at the University of Plymouth and the team at RenewableUK. I thank them for their contribution to my speech.

FLOW in the Celtic sea offers unique advantages, allowing us to harness energy regardless of wind direction. Despite its previous neglect due to seabed depths, FLOW can now be deployed in waters deeper than 60 metres, unlocking 80% of our offshore wind resource. That technology presents a significant opportunity for the region’s economic growth and net zero benefits. In 2024, the Crown Estate launched the leasing round for up to 4.5 GW in the Celtic sea, a crucial component in the battle to mitigate climate change and to make progress to net zero greenhouse gas emissions. I am pleased that the Crown Estate is taking what steps it can to drive onshore benefits through its leasing round, but a tender process is only one mechanism for realising the opportunities arising from such projects.

A co-ordinated national infrastructure approach for the Celtic sea is crucial. Such an approach, ideally as a bespoke strategy, is necessary to overcome the ongoing delays and issues we are facing and to ensure the successful development of FLOW in the region. I am glad to hear that RenewableUK, the Crown Estate and others have published an industrial growth plan to co-ordinate the investments needed to realise the opportunity, including prioritising where those investments will have the most impact. Using the growth plan as a blueprint for an industrial strategy for the Celtic sea—to give clarity on how those private investments can co-ordinate with public investment in critical infrastructure such as ports—will provide other investors with the long-term certainty they need to ensure that allocation round 5 and future Celtic sea projects are as successful as possible.

The importance of AR6 cannot be understated. At the moment, investor confidence is low, partly due to the failure in 2023 of AR5 of the contracts for difference, or CfD, to secure any contracts for offshore wind. That has been compounded by international competition and the attractiveness of other markets, which are investing significantly in FLOW infrastructure. Competition, in my mind, is stopping the evolution of FLOW. Currently, four FLOW projects can bid into AR6, with a total capacity of 658 MW: Blyth, which is a 58 MW project in Northumberland and is presented by EDF Renewables UK and Ireland; Erebus by Blue Gem Wind, which is a 100 MW project in the Celtic sea and is backed by TotalEnergies and the Simply Blue Group; Pentland, which is a 100 MW project in Scotland and is backed by Copenhagen Infrastructure Partners; and one new innovation and targeted oil and gas project, Green Volt, which received consent in April and can bid 400 MW.

The budget for AR6 needs to be big enough to accommodate not only the projects that lost out in AR5, but those that would have bid into AR6, so as to not have a knock-on effect on future allocation rounds. I cannot stress enough the future benefits of getting the budget right in this round, and of getting as many viable projects out to sea as rapidly as possible.

The opportunity is to not only regain lost ground, but support FLOW’s growth into the future. That means that while a typical budget might accommodate one or two projects, this year’s budget needs to accommodate three or four. Without these stepping-stone projects, we run the risk of higher costs for future commercial-scale projects and of creating mixed signals for investors in projects, supply chains and ports. Every project that bids and has cleared the hurdles set by the Department should be able to progress, especially if projects are ready to float.

Historically, Celtic sea ports have not received the same investment that has helped their North sea counterparts to develop the supply chain and port capabilities necessary to deploy FLOW. It is indeed hugely disappointing that the only successful FLOW project in AR4—the Hexicon project in Cornwall—did not see its associated port, Falmouth, receiving any funding from FLOWMIS. The dislocation of these spending decisions is bewildering to those of us working with developers in the region.

As I said, investor confidence is low following the lack of bids into AR5, so we have to encourage external investment, but that is simply not the direction of travel we have seen in recent Government spending decisions. I understand that the budget is a matter for the Treasury—the future Treasury—and I have met the Exchequer Secretary to the Treasury to ask for a pot 2 budget big enough to accommodate multiple projects, so that we can maximise the number of winning projects and accommodate those that could not bid in AR5. That is essential to allow Celtic sea projects to move forward at the same pace as North sea projects.

The Celtic sea region of the south-west and Wales includes economically deprived areas, so there is a great opportunity for impact on the economy and society there, but there also needs to be huge innovation to fully commercialise the sector. With my Celtic sea hat on, effective routes to investment could include Celtic sea ringfenced CfD allocations—indeed, I would allow each region to have its own pot. We need these small test and demonstration sites to succeed before any business will invest the kind of money required to deliver the FLOW of the future that the country needs. I was told yesterday that developers are spending £50 million before they even get in their bid for their contract for difference, and that it costs £1 billion to build a stepping-stone project. We should also look to the past, as fixed offshore wind projects were not required to bid in this competitive way until 5 GW had already been secured.

We also need dedicated Celtic sea FLOWMIS allocations, place-based investment, regional co-ordination of public funds and proper net zero plans for the region. The CfD budget plays a vital role in supporting the development of FLOW in both the North sea and the Celtic sea, but it must be substantial enough to ensure the progress of multiple FLOW projects each year, thereby preventing a monopoly in the North sea and ensuring a fair distribution of resources.

On port investment, I am pleased that one Celtic sea port has been supported through Port Talbot in Wales, but I urge the Government to look at a multi-port strategy. We know that no single all-purpose port can accommodate the scale of FLOW development and the need to serve such a large area of ocean. An increase in budget requires more FLOWMIS funding rounds. The decision criteria for allocating grant funding should be reviewed to better apportion the budget to support multiple ports in the Celtic sea region, taking into consideration the stepping-stone nature of the Celtic sea FLOW projects.

I was, as I mentioned, hugely disappointed that no funding had been made available to Port Falmouth, given its partnership with Hexicon’s TwinHub. It had successfully bid for its CfD in AR4, and the TwinHub project is therefore far more advanced than others. However, the absence of FLOWMIS funding will now make it more challenging for those partners to deliver their project, and will almost certainly see all the onshore benefits of that vital project go overseas. The stepping-stone nature of the Celtic sea FLOW project seems to have been omitted from the decision criteria for FLOWMIS. The all-party parliamentary group will continue to seek to engage with Ministers to secure additional port funding for Falmouth and other ports around the Celtic sea as more projects secure a lease.

I will take this opportunity to share the diverse mix of port facilities across the region, including Falmouth, which is ideal for deep-water logistics and fabrication; Appledore, which has shipbuilding, low-carbon vessel innovation and servicing; Plymouth and South Devon freeport, which has marine innovation, blue tech investment and the Smart Sound Plymouth autonomous vehicle test range; Portland port, which is a potential logistics hub; and Ilfracombe in my constituency, which is ideally located for ops and maintenance. In Wales, my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) made me aware of the challenges with the port of Milford Haven. Although he could not be here today, he has worked closely with me as vice-chair of the APPG for the Celtic sea to ensure the Department’s support of the port of Milford Haven project.

The port of Milford Haven stands ready to create a new green energy terminal in Pembroke Dock. As the closest port to the Celtic sea development sites, the port of Milford Haven’s development ambitions at Criterion quay for a 400 MW test and demonstration phase and a fit-for-purpose site for integration and operations and maintenance activities are crucial to support future commercial-scale phases of FLOW in the Celtic sea.

The APPG’s main ask today is for subsequent rounds of FLOWMIS grants and an increase to the £160 million scheme budget. The Government’s support of Hexicon’s TwinHub project is crucial, especially as the sector has been battling a much-changed economic environment since its bid. With Falmouth port ready to match Government funding, this first stepping-stone project needs that vital FLOWMIS leg-up to see optimal onshore benefits alongside this innovative, leading offshore project. Funding decisions should be made on FLOWMIS as quickly as possible to allow our ports and supply chain to gear up for that huge opportunity to ensure that ports work collaboratively and optimise supply chain expertise.

Another issue that can pose a stumbling block for FLOW, which I am dealing with at first hand in my constituency of North Devon, is the National Grid and cable routes with the White Cross wind farm project. Since my election, I have championed floating offshore wind, and getting the Celtic sea projects right would create huge economic opportunities for the local economy in North Devon.

I have previously raised concerns about the White Cross wind farm because of the route submitted to planning, which would involve tunnelling through several miles of highly designated sand dunes and would severely disrupt several businesses for many years to come. Although some community engagement has been ongoing this week, the community benefit proposed for the project and the manner in which engagement has progressed has been severely lacking. Although local communities are hugely supportive of FLOW, there are environmental concerns with cable corridor routes, and certain developments risk undermining all the support that has been generated along the south-west coastline in particular.

Because of the scale of the project, the decision on whether it goes ahead now lies entirely with the Marine Management Organisation that approved the work to the shoreline and North Devon Council’s planning authority. Although I have no influence on that decision, I am pushing for the community to be properly recompensed for any associated disruption. The White Cross project is not yet through the planning process and is now blighted by an issue with bats. Bizarrely, there are now objections from Natural England, which was the main reason that that cable route was chosen in the first place, as well as nearly 1,000 objections on the North Devon Council planning portal.

The site has been leased from the Crown Estate, and apparently the only viable grid connection is at Yelland, which is a highly contentious site in its own right. Getting from the wind turbines to that connection will be hugely problematic, whichever company tries to develop it. I know that strategic work on the grid is ongoing, but we need to better link these huge infrastructure projects together, as the current piecemeal approach is causing unnecessary distress to communities and businesses and untold environmental damage as a result of a project that is designed to help to reduce our carbon footprint in the long term. Frankly, we need to follow Tim Pick’s strategy to deliver FLOW right around the coast effectively and efficiently.

My genuine fear is that if the budget is not increased adequately for AR6, the Celtic sea project, which we hope has bid, may not proceed, as Hexicon alone will not be a big enough step to the next project. As I have said countless times, for those doubters of wind, the wind blows the other way in the Celtic sea—to the north- east. We therefore optimise our wind resource and energy security by ensuring that all the regions are able to participate in FLOW. Again, I urge the Minister to hear the objectives of the APPG for the Celtic sea to co-ordinate a more strategic approach to this new region for offshore renewables to avoid some of the cabling issues we have already seen on the east coast. The National Grid also needs to work to minimise onshore disruption from that vital infrastructure.

Let me restate the asks. We need dedicated Celtic sea funding and an integrated port and infrastructure strategy, working across the Celtic sea region to derive maximum benefit from FLOW developments and ideally treating the entire region as one national infrastructure project. That could also include establishing sector-based working groups that engage developers, the Crown Estate, National Grid, ports and regional stakeholders to ensure strategically phased developments to support supply chain engagement and prioritisation of infrastructure spend in the region.

Future CfDs need to support multiple FLOW projects a year to ensure their progress and to make up for lost ground in AR5. The individual support for the Celtic sea’s first FLOW project, TwinHub, with recognition of its stepping-stone nature, is vital to ensuring the development of the supply chain. We need to remove the barriers to FLOW and although I know the Celtic sea is a different kettle of fish to FLOW elsewhere, there is one thing in common and that is the barriers to planning and applications.

The barriers to delivering FLOW must be removed to ensure lasting benefits. Streamlining the planning and consenting process and increasing co-operation between Government Departments—from the Department for Energy Security and Net Zero and the Department for Environment, Food and Rural Affairs to the Department for Transport and others, taking a whole systems approach—could be transformational. For the Celtic sea, the APPG preference throughout has been that a single cable corridor to Devon and Cornwall and one to south Wales should be established to reduce sea floor damage and cabling onshore, as the bigger projects go out to sea. A strategic view taken on cable corridors might also reduce costs.

At a deeper level, there is also a skills piece that interlinks with our FLOW projects. The Crown Estate estimates that up to £1.4 billion could be generated for the UK economy, with up to 5,300 new jobs created within the supply chain. The creation of a skills taskforce to strategically bring together sector developers and education providers will unlock the workforce needed to deliver and ensure that local people, particularly those in economically deprived areas, develop career opportunities for now and for future generations. Getting that right has financial implications, so I know some of the decisions will involve the Treasury.

I will continue to lobby for a budget big enough to maximise the number of winning projects and accommodate those who could not bid into AR5. One part of my six-point plan for North Devon is to ensure we fully benefit from the green economy. I am doing that today because, if fully recognised, FLOW will create high-value jobs and strengthen local economies, while bolstering research and development within the industry so that the UK can become a world leader and exporter of FLOW.

--- Later in debate ---

[Selaine Saxby]

I thank all hon. Members for their contributions. I echo the Minister’s comments about the shadow Minister, the hon. Member for Southampton, Test (Dr Whitehead): I wish him all the best.

This debate has been small but perfectly formed. We very much agreed, as has been the case for all Celtic FLOW debates and projects that I have worked on. Whatever happens over the next few weeks, I very much hope that that cross-party consensus continues. Having been with developers and the Crown Estate this week, I know that there is a huge drive for it to succeed. It is about how we get those projects over the line in a pragmatic manner to bring bills down in the longer term. We need to get these things moving; otherwise, we will not get there in the end. I thank everyone for their contributions to the final Westminster Hall debate of this Parliament.

Question put and agreed to.

Resolved,

That this House has considered floating offshore wind and Allocation Round 6 of the Contracts for Difference scheme.