Record low prices will not be the only consequence of the UK’s latest CfD auction: the process will help define the next auction; could influence the prospects for floating wind; encourage merchant bids; and see new developers take a position in the market
“The award of this much capacity at such low prices is a real game-changer for the UK’s offshore wind sector. Since the strike prices are below the reference price, these projects are virtually subsidy free and what is more, they would all be paying back money to the treasury,” said Offshore Wind Consultants consultant, Juan Frías.
“The results of the auction reveal three clear winners: Equinor and SSE, which teamed up for three projects on Dogger Bank totalling 3.6 GW, in addition to which SSE secured 454 MW in the Firth of Forth independently; and innogy, with its Sofia project, also on the Dogger Bank (1.4 GW).
“The record low prices, which caught everyone by surprise, will support the UK’s net zero by 2050 commitment, but only if they can be delivered without compromising the supply chain, which is one the main pillars of the sector deal awarded to the offshore wind industry earlier this year.”
Mr Frías said that, among the projects competing in the auction, the projects on Dogger Bank benefited from being in shallow water, between 20 m and 30 m for the most part, good wind speeds and cost savings from shared transmission infrastructure, shared operations and maintenance, and the advantages of large-scale procurement. However, they were also the furthest from shore at 130 km.”
Mr Frías said it will be interesting to see how the results of this latest auction and the very low prices achieved will affect developers interested in upcoming lease auctions by The Crown Estate and Crown Estate Scotland.
Projects awarded following those lease auctions are due to be commissioned by 2030. Developers will therefore need to very thoroughly assess the technical feasibility of potential projects in that timeframe in such a competitive scenario.
“It is likely that a separate pot will be necessary for floating wind,” Mr Frías told OWJ. “This round has shown that even with the better capacity factors floating wind enjoys that it will be tough to compete against bottom-fixed offshore at these prices.”
Mr Frías also suggested that the result of the latest auction could have a significant influence on the next CfD auction, which is to be held in 2021. The spectacularly successful auction could influence factors such as the capacity cap, budget cap and administrative strike prices.
“Since the winning bids came in below baseload prices, might there be developers interested in going merchant for the next auction?” he asked.
Offshore Wind Consultants also expects that stakes in the most recently awarded round of projects could change hands or be sold down.
“The prevalence of two developers in four projects gives them the opportunity to reduce their equity positions or even sell,” Mr Frías concluded. “This means there are opportunities for developers who have yet to get a foothold in the UK market, who may be a bit wary of the development risks in Round 4 and ScotWind.”