While welcoming the award of more lease areas for offshore wind in the UK’s Round 4 auction process, trade bodies say the way the auction process was organised has resulted in too few sites being made available for developers to bid on, with the result that consumers could have to pay more in future
Responding to the results of The Crown Estate’s invitation to tender Stage 2 process for Round 4, RenewableUK said, “Companies were invited to submit bids for an ‘option fee’ for each of the available sites, which will be paid annually until companies finalise their plans to build the new windfarms, up to a maximum of 10 years.
“This is the first time a bidding process to set option fees has been used in the leasing process for offshore wind. Previously The Crown Estate had set fixed annual option fees. The option fee will be paid annually until companies get the final planning permission, which they need to then bid in the contracts for difference auction. The planning process could take up to 10 years.
“The industry had warned that the limited number of sites available and high demand risked an auction that resulted in very high bids. The nearly 8 GW awarded in this Fourth Leasing Round is significantly lower than the 32 GW secured in the Fourth leasing round held in 2010,” RenewableUK said.
“The option fees announced today totalling £879M (US$1.21Bn) per year, or £111M per GW per year, represent a very significant sum for developers. In comparison, developing and constructing a 1 GW offshore windfarm currently requires investment of around £2.5Bn.”
RenewableUK deputy chief executive Melanie Onn said, “Offshore wind will be the backbone of our future electricity system and growing the pipeline of offshore wind projects is essential to ensure we have the capacity we need. These new sites can make a huge contribution to decarbonising our energy system and achieving net zero.
“The result of this leasing round shows that while demand for new offshore wind projects has never been higher, too few sites were made available to meet this demand. Any auction run on that basis will inevitably lead to high fees like these, and our concern is that this could ultimately mean higher costs for developers and consumers.
“Going forward we need more clarity from the Crown Estate on the timing, size and speed of future leasing rounds. Sustainable competition and prices are vital for consumers, industry and the supply chain.”
WindEurope also expressed concern about the option fee and its potential effect, and about the volume of potential offshore wind generating capacity awarded in Round Four.
“Offshore Wind Lease Round 4 allocated areas for developing nearly 8 GW of capacity. This is too little new capacity considering the huge ambitions the UK Government has to quadruple its offshore wind to 40 GW by 2030,” WindEurope said.
“The wind industry had warned that the limited number of sites available and high demand risked an auction with very high bids. Leasing Round 4 is significantly lower than the 32 GW secured in the third leasing round held in 2010.
“The UK has done a great job so far on offshore wind. It has used the right auction design with contracts for difference. It is building up a strong supply chain creating thousands of jobs. It has reduced the costs for offshore wind hugely and set extremely ambitious targets for further build-out. But now with their new seabed leasing auction, they’re getting it badly wrong.
“Bidders shouldn’t have to pay large amounts for the right to develop offshore wind. And they’re making so little capacity available that developers are having to pay huge amounts to win the auction. The developers will have to pass on these costs, so it’s a big new burden on consumers with no additional benefits,” said WindEurope chief executive Giles Dickson. “The option fees announced today represent a very significant sum for developers.
“The last time the UK allocated seabed rights 10 years ago, it was for four times more capacity than what they’re auctioning now. Yet now they’re trying to build far more offshore wind. And there are more companies who want to build it. Plus it’s unclear when the next auction will take place. So there’s a price frenzy in the bidding and that will just get passed on to energy bills.
“No other country in Europe has this sort of model for seabed leasing. Demanding extra upfront payments only increases the costs of offshore wind. Just when offshore wind was becoming such a success story for the UK, they risk making it more expensive, increasing energy bills and undermining the expansion of the industry and all the jobs it should be creating, especially in the northeast of England. It’s bad for the economy and bad for the energy transition the UK is supposed to be championing,” Mr Dickson concluded.
Riviera will provide free technical and operational webinars in 2021. Sign up to attend on our events page