I'd never heard of GWPF before, but having Lawson as a spokesperson is hardly going to help anyone take them seriously. However, a bit of searching found this which I assume is the basis of their claim:
https://www.thegwpf.org/content/uploads/2017/09/OffshoreStrikePrice.pdflinked from a letter to the FT:
https://www.ft.com/content/949ff02c-a539-11e7-b797-b61809486fe2For those who don't have the time or interest, the nub of their argument is that they simply don't believe that costs have declined anywhere near that implied by, or that offshore wind is viable, at the prices (£57.5 and £74.75) bid in the latest auctions: [note, my bold]
Putting aside such special factors, there are three possible explanations for a large drop in the auction prices. These are:
•Bidders believe that investors will accept much lower real rates of return on the equity or debt required to fund the capital investment. For this to add up, the real cost of capital would have to be less than 2%, but even in current conditions this is exceptionally low and there is no evidence that investors are willing to accept such rates of return on investments that are still of relatively high risk.
•Bidders believe that the cost of building new offshore wind farms after 2020 will be less than 40% of the projected figures in our analysis discussed above. There is no public evidence of any kind to support this belief, and in fact our analysis is based on public statements made by developers themselves, which tend in any case to be optimistic.
•The companies bid low and uneconomic prices in order to make sure of obtaining the CfDs, which they see as low-cost, no-penalty ptions, gambling on future market circumstances and policies that will generate income over and above the CfD.
In our view this last possibility is the most probable explanation. The media excitement around the auction has generated very useful pro-wind and anti-nuclear PR, which is doubtless welcome. However, it is not the main motivation, which is a commercial speculation on future policy and wholesale prices. The holder of the option, the CfD, has an established position in the market that inhibits competition, but is in fact not restricted by the contract.
If future wholesale prices seem very likely to rise above the strike price and remain there, then the wind farm may be built, and the contract quickly abrogated, which is neither difficult nor costly, leaving the wind farm able to take the higher prices that it actually needs. At present, of course, it does not appear that conventional energy prices are likely to rise sufficiently by the early 2020s to produce the high wholesale prices required, but the wind farm developers may entertain hopes of policy support, such as a carbon price. Without the likelihood of such higher prices, these options will be allowed to lapse. All this is a perfectly reasonable gamble for a large company.
However, the tactic has risks. In a revealing story published by Bloomberg on 20 September 2017, Irene Rummelhoff, executive vice president Statoil ASA’s New Energy Solutions unit, is reported as remarking:
The offshore wind industry needs to be careful... They’re taking on these options, and when you get to the delivery date, if they’re not able to build the projects, it will ruin the reputation of the industry
I've no idea if their argument stands up to serious scrutiny or not but ultimately only time will tell. There are plenty of numbers out their put out by the industry but I expect that 'real' costs are almost impossible to come by being commercialy highly sensitive - no-one wants their competitors to know how much they pay for anything, or profitability beyond what they are legally required to publish in accounts.
Still I'm sure there are some here who have a good enough handle on actual development costs to shed more light on how plausible or ludicrous their arguement. Personally I do find the dramatic drop in the CFD bids hard to believe given that quite a large number of fields have been, or are currently being built, such that economies of scale must already be quite a way down the curve.
Perhaps another explanation is that insufficient competition meant that previous/current pricing allowed huge margins for everyone involved (or serious price gouging by manufacturers with demand well in excess of supply) and that fierce bidding has now driven them down to the bone.
Does it look like Chinese manufacturers will become serious threats to the incumbents such as Siemens, Vestas etc. in the near future as they did with PV?