Big boost for UK offshore wind as prices for next auction rise 66%

Following an extensive review of the failed AR5 auction, for which no offshore wind developers submitted bids because prices were set too low and did not take into account the effects of inflation, the government has raised the maximum price offshore wind and other renewables projects can receive in the next Contract for Difference (CfD) auction.

The maximum strike price has been increased by 66% for offshore wind projects, from £44/MWh to £73/MWh (US$90/MWh), and by 52% for floating offshore wind projects, from £116/MWh to £176/MWh.

“This will help ensure projects are sustainably priced and economically viable to compete in AR6, building on the success of previous CfD auctions,” said the Department for Energy Security and Net Zero.

In AR6, offshore wind will also be given a separate funding pot in recognition of the high number of projects ready to participate. “This will ensure healthy competition among a strong pipeline of projects, helping the UK deliver on its ambition of up to 50 GW of offshore wind by 2030, including up to 5 GW of floating offshore wind,” said the Department.

Energy Security Secretary Claire Coutinho said, “The UK is home to the world’s five largest offshore windfarm projects. Today, we have started the process of our latest CfD auction for renewables, opening in March 2024. We recognise there have been global challenges in this sector and our new annual auction allows us to reflect this. This is a vital part of our plan to have enough homegrown clean energy, bringing bills down for families and strengthening our energy independence.” 

Minister of State for Energy Security and Net Zero Graham Stuart said, “This critical update to the scheme’s design provides further clarity and confidence to the offshore wind sector and ensures it remains competitive for renewable developers investing in new low-carbon technologies.”

Exchequer Secretary to the Treasury Gareth Davies MP said the CfD scheme has played an indispensable role in driving forward renewable energy projects. He said supporting industry to make investments in renewable energy “is essential to achieving our net-zero goals, vital to attracting investment to our coastal communities, supporting jobs, and levelling up.”

Responding to the much higher prices available for AR6, RenewableUK chief executive Dan McGrail said, “Ensuring the UK continues to unlock investment in renewables is critical to improve Britain’s energy security, drive economic growth, support thousands of new green jobs and enable us to continue to create a lowest cost electricity system for billpayers. With intense international competition for investment in renewables, we welcome the strong commitment to the sector shown by government, which demonstrates the UK is intent on remaining a global leader in offshore wind.

“There is the potential for the government to attract a record level of private investment in offshore wind projects next year, with at least 10 projects likely to be eligible, able to power 8.5M homes each year and reduce the UK’s need for gas by 39%. Although renewables haven’t been immune from the recent rises in financing and supply chain costs which all major infrastructure projects have faced, they remain the lowest cost means of generating new electricity. Even at these new prices, there is still no cheaper way to meet the UK’s rising electricity demand and increase our energy security.”

RWE UK country chair Tom Glover said the company welcomes the government’s decision on the strike prices for renewables technology bidding into AR6 and its recognition of inflationary cost pressures within the clean energy sector. Mr Glover said he also welcomed the decision to revert to a separate allocation pot for offshore wind for AR6, which should help to secure future capacity towards the UK’s 50 GW by 2030 target.

ScottishPower chief executive Keith Anderson said, “The real test will come when the overall budget for the next auction round is set, but there is no doubt about it, this is a step in the right direction.”