Strong winds ahead

A new study looks at the impact of potential offshore wind development on the UK economy.

By 2030, UK GDP could increase by 0.6 per cent, with 173,000 full-time jobs created, through planned investment in offshore wind generation. That’s the finding of an industry-commissioned study by the Centre for Economics and Business Research in London.

More immediately, it concludes that by 2015 the contribution from offshore wind to the economy could be 0.2 per cent of GDP and over 45,000 jobs. By 2030, through moderate build out rates of offshore wind, the sector will deliver an increase in net exports of £18.8 billion, “sufficient to fill nearly 75 per cent of the UK’s current balance of trade deficit.”

A “more aggressive, but achievable, approach” could result in the creation of over 200,000 jobs and a net increase in exports of £22.5 billion.

The study analyses the macroeconomic impact of offshore wind under three scenarios: ‘slow progression’; ‘gone green’; and ‘accelerated growth’. Slow progression assumes a sluggish response to the UK’s binding emissions commitments (80 per cent reduction on 1990 levels by 2050). ‘Gone green’ assumes the 2020 renewables target

(15 per cent of energy) and the 2020 and 2030 emissions targets are met as well as accelerated wind capacity expansion. The 2008 Climate Change Act demands an emissions cut of at least 34 per cent by 2020. It is expected that a cut of 60 per cent will be required by 2030.

Projected 2020 offshore capacity

(49GW) under the ‘accelerated growth’ scenario “is a stretch given current integration technologies and approaches,” according to the study. “The 2030 figures require significant improvement in network management technologies and assumptions.”

Factoring in the indirect impacts of investment in offshore wind energy on foreign trade, every £1 of gross value added (GVA) generated could lead to a £2.31 boost in GVA in 2015 under the ‘accelerated growth’ scenario. The same scenario could also see an additional 1.49 full-time jobs indirectly created through every full-time job directly created by offshore wind.

Exports

As well as the benefits accruing to the domestic economy, the study predicts significant energy exports potential. Factoring in increased interconnection, it ranges from £1.5 billion – £2.3 billion by 2020 under all three scenarios. Accelerated growth would produce a £10.9 billion increase in exports by 2030.

The study states: “it is reasonable to expect the supply chain to mature to the extent that considerable exports of components and expertise could be realised.” Though UK content

(i.e. proportion of contracts) in continental wind farm projects would only constitute 8 per cent of projects under ‘slow progression’, this rises to 41 per cent through ‘accelerated growth’.

Domestically, UK services amount to 30-35 per cent of supply chain contributions to offshore wind farms. Under a ‘slow progression’ scenario this proportion would only increase to

56 per cent by 2030, contrasting with 77 per cent through ‘accelerated growth’.

Not all proportions of development will contribute equally to the supply chain’s share of exports, the study states. Development services, for example, are expected to feature heavily. This is an area where the UK is seen as having comparative advantage.

The study also predicts the impacts on the net balance of trade from reductions in fossil fuel imports, energy export increases, offshore wind investment imports and exports. Under ‘slow progression’, the net balance impact (in 2009 prices) in 2020 would be £1.9 billion. This rises to £2.1 billion under the ‘going green’ scenario, and to £3.6 billion under ‘accelerated growth’.

Introducing a large proportion of offshore wind onto the system will have positive effects on fossil fuel import dependence. In 2010, 76 per cent of the UK’s electricity production was sourced from coal, oil and gas. The authors state that this year the amount of offshore wind generated in the UK equates to 14.6 million barrels of oil. This would rise to 97.4 million barrels in 2020 and 211.8 million in 2030 under the ‘gone green’ scenario.

Using the standard industrial classifications (SIC 2007) of the UK’s Office for National Statistics, the report states that fabricated metal products, constructions and construction works, and electrical equipment (in rank order) will produce most demand investment stimuli. By 2030, under the ‘accelerated growth’ scenario, however, electricity, gas, steam and air conditioning become the third largest category, estimated at £536 million (in 2009 prices).

The report acknowledges its own limitations. The authors did not study post-investment impacts of offshore wind. A positive implication of this is that certain effects could cancel out multiplier reductions, e.g. less fossil fuel use reduces the electricity sector’s exposure to risks of fluctuating international prices. Conversely, analysis of each year’s investment in offshore wind boosts final demand for investment but makes no assumptions about declining investment in coal or gas-fired generation.

It concludes that inclusion of a substantial amount of offshore wind can help to achieve the long-term goals of the electricity sector: reducing risk in the mid-term and cost in the long term. “Offshore wind is an important technological investment that will expand the UK economy in the decarbonised global economy of the 21st century.”