UK energy minister Claire Perry says just £60M (US$77M) will be made available for the next competitive auction for a contract for difference (CfD) for renewable energy in the UK, an auction that is widely perceived as an ‘offshore wind round.’
On 20 November 2018, she was quoted in Hansard, the official, verbatim report of proceedings in the House of Commons, saying, “I wanted to announce to the House that we are in the final stages of concluding our offshore wind sector deal.
“It will include both £60M for the contract for difference auction next spring and a series of substantial commitments from the operators in the sector to increase the UK content that will be spent.”
The sum announced by the minister was lower than anticipated by many in the wind energy sector given the overall level of funding announced earlier this year by the government for future CfD auctions.
Given the surprisingly low level of funding for the next CfD auction – which is due to take place in May 2019 – questions have already been raised about how much capacity that might buy and whether the government is trying to drive down prices bid in the auction even further than the very low levels achieved recently.
Offshore Wind Consultants director John MacAskill said the £60M is “well short of expectations and to be honest on the lower end of what we wanted.
“This could also damage the viability of more expensive, deeper Scottish projects, both leased and those to come out of the Scottish round if the CfD pot is either too small, or some kind of allocation is not applied. We are not really impressed with this,” Mr MacAskill said.
Responding to some of the criticism levelled at the seemingly sum allocated to the auction, a Department for Business, Energy and Industrial Strategy (BEIS) spokesperson said, “We are world leaders in renewable technology, including benefitting from the largest offshore windfarm in the world, and cutting emissions per person faster than any other G7 country since 1990 and producing record levels of low carbon energy.
“We have announced a budget of £60M for the next clean electricity auction – the fall in costs of renewable electricity means that we should be able to secure more generation than the last auction at a lower cost for consumers.”
In July 2018, the Department for Business, Energy and Industrial Strategy announced details of new auctions to secure renewable energy sources which, it was claimed, would mean that the UK’s offshore wind capacity would double over the next decade.
Ministers confirmed that the next competitive auction to procure new renewable power capacity will take place in May 2019, with offshore wind, remote island wind and a range of other projects competing for CfDs.
The minister announced at that time that CfD auctions would take place every two years and that auctions would be supported by an overall budget of £557M. The announcement did not indicate exactly how much of that £557M would be allocated to each of the upcoming CFD auctions.
The government’s announcement indicated support for an additional 2 GW of offshore wind per year in the 2020s which could deliver up to 16 GW of new capacity, which would generate approximately 20% of UK power. In 2017, offshore wind generated 6% of UK power.
Aurora Energy research director Richard Howard noted that the draft allocation notice issued by BEIS for the May 2019 auction was for projects for delivery in 2023-25 and that the administrative strike price for offshore wind had been reduced to £53-56/MWh, which is below the lowest clearing price in the last auction.
The second CfD auction in 2017 saw the clearing price for offshore wind – £57.50/MWh in 2012 prices – halved compared to the first auction (2015) and secured 3.3 GW of renewable electricity capacity.
Energy analyst and consultant Cornwall Insight has suggested that with administrative strike prices of £53/MWh for offshore wind, if bidding behaviour by companies participating in the auction pans out as the government expects, it could result in more than 2 GW of offshore windfarms receiving contracts.