BP’s plan for wind farms without subsidies

BP is considering building two huge offshore wind farms in British waters without government subsidy contracts in what would be a first for the sector.

Bernard Looney, the energy group’s chief executive, said it could start building the Morgan and Mona projects in the Irish Sea as soon as “late next year” and may not seek contracts from the government to guarantee their revenues. The wind farms together would boast up to 214 turbines about 20 miles off the coasts of north Wales and northwest England and could power 3.4 million homes.

Looney’s comments buck a gloomy mood in the offshore wind industry as it battles soaring costs, with other developers lobbying for increased subsidies and scrapping some projects. However, his ambitious timescale was met with scepticism from industry experts, given that BP has yet to apply for planning consent, which can take several years to secure.

BP is a FTSE 100 oil major that is moving into offshore wind as it pursues decarbonisation goals. It has faced calls to invest more of its profits, which hit a record $28 billion last year, in green energy. The government is aiming to more than triple offshore wind capacity by 2030.

Every big wind farm in UK waters to date has been built with some form of subsidy scheme, with projects in recent years supported by “contracts for difference”, awarded through government auctions. The contracts guarantee that consumers pay a fixed price for electricity from the wind farms, topping up market prices with subsidies when required and offering valuable revenue certainty to developers.

However, BP believes it can make use of much of the electricity itself, such as to supply electric vehicle chargers and to make “green” hydrogen through electrolysis, which could obviate the need for such a contract.

Looney, 52, said: “We may not enter any [contracts for difference] auction actually, because our strategy is to use the electrons [electricity] for our own use where we can. There’s a lot of green electricity demand for us in the UK.” BP planned to invest £1 billion in electric vehicle charging in Britain and to build green hydrogen plants on Teesside, he said.

The company is developing the wind projects jointly with EnBW, of Germany. They secured seabed leases from the Crown Estate in early 2021 when they committed to pay a record high option fee of £231 million a year for each project. At the time they expected to pay the fees for four years before final investment decisions and for the projects to be operational within seven years.

In a potential boost for BP, Looney said it may be able to pay the fees for a shorter period, implying the minimum three years contractually required. The option fees began only once leases were formally signed in January, almost a year later than expected, giving developers more time to work on the projects before incurring fees.

Challenges remain, however. Many wind farms have faced delays in securing planning consent and connections to the national grid. BP’s projects are not expected to apply for planning consent until early next year, a process that usually takes at least a year.

Looney said “the big issue has been the grid connection”, which he believed the company was “very close” to securing. “I think the teams have made really, really good progress, which is what is giving us more confidence around maybe having a shorter lease period in terms of lease payments,” he said.

Barnaby Wharton, a director at RenewableUK, said the potential for wind farms to be developed with no contracts for difference support showed “confidence in the UK’s offshore wind market during challenging economic times worldwide”.