Offshore wind is well positioned to play a major role in the long term UK energy mix even in the case of hard Brexit, according to a joint report by Wood Mackenzie and Verisk Maplecroft.
With more than 19GW of new capacity forecast by 2028, a hard Brexit is expected to have limited impact on this development potential, the report said. Large offshore wind deployment is also projected to play a major part in the replacement of supply lost from coal and nuclear.
Should the UK exit the EU with no trade deal in place with any other entity, including the UK, its import tariffs will be by default set according to the World Trade Organisation’s Most Favoured Nation (MFN) rates.
The components that comprise an offshore wind farm, including the nacelle, blade, tower, substructure and transmission elements are classed under ‘Electrical machinery and mechanical appliances, electrical equipment; parts thereof’, for which the MFN rate is currently the relatively low 2.7%. Under the hard Brexit scenario, the UK would apply the 2.7% tariff to the EU and all other states alike. This tariff will apply only to the important, non-UK components of UK wind farm projects. Across the recent seven projects, non-UK based contracts value is averaged at 68% of the total project CAPEX, the report said.
Apart from the tariff, importing parts for the offshore wind industry is likely to be complicated by other factors which are currently impossible to quantify and will likely include reduced access to both skilled and unskilled labour, the report said.
The UK’s future trading relationship with the EU and third states with which the EU has free trade agreements could bring a high level of uncertainty which is expected to adversely affect the UK economy, as businesses are unable to plan for the future. Additional challenges could be caused by the current lack of customs processing infrastructure in the UK which is likely to cause delays to imports of wind farm components, according to the report.
The potential import tariff and various uncertainties associated with hard Brexit could lead to a drop in the awarded capacity supported through the upcoming Round 3 Contracts for Difference auction . However, a higher degree of clarity on hard Brexit is expected by the commencement of the next CfD allocation round, the report said.
Interconnectors
Hard Brexit is also expected to cause small changes to the operation of existing interconnectors. However, the hard Brexit is expected to have a more adverse impact on pre-FID interconnector projects which are likely to be held until energy trading arrangements with the EU could be agreed. If this is the case and the planned projects are delayed, this could be an opportunity to strengthen the case for energy storage as the alternative, the report said.