The UK government has increased the prices available for offshore wind in next year’s Contracts for Difference auction round following disappointment.
This year’s contracts for difference (CfD) awards, the government’s flagship scheme for renewable energy procurement, saw no successful bids for offshore wind as the price was too low, forcing it to compete with cheaper technologies.
In the next CfD round, the price will see a 66% increase in order to avoid repeating the same mistakes as the government looks to attract further investment in the space.
The price has jumped from £44/MWh to £73/MWh, and gone up by 52% for floating offshore wind projects, from £116/MWh to £176/MWh ahead of Allocation Round 6 (AR6) next year.
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 the scheme remains competitive for renewable developers investing in new low carbon technologies. ”
Today developed proposals are also being published to review applications from the 2025 auction, not just on their ability to deliver low-cost renewable energy, but also on how much a project strengthens the environmental and economic sustainability of the industry, says the UK government.
As part of this, a project’s social impact will also be considered – including how supply chains affect jobs and communities.
Claire Coutinho, energy security secretary commented: “The UK is home to the world’s five largest offshore wind farms projects.
“Today we have started the process of our latest Contracts for Difference auction for renewables, opening in March next year. We recognise that 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.”
Other renewable energy sources to see a price bump
The Government is also bumping up maximum bid prices for other technologies in a move it hopes will increase certainty for developers.
Geothermal will see a 32% increase, going from £119/MWh to £157/MWh, solar sees a 30% uptick, from £47/MWh to £61/MWh, and bid price for tidal climbs by 29%, £202/MWh to £261/MWh.
The consultation published today invites views on how Sustainable Industry Rewards, formerly non-price factors, could be incorporated into the 2025 auction process.
This would be for offshore wind and floating offshore wind companies and would mean additional payments if they reduce the carbon emissions in their supply chains, or if they improve their social benefits.
Why did offshore wind fail this year?
The offshore wind sector, like much of the economy, has been hit hard by inflation. This increases not only the cost of materials like steel and the services needed to complete projects, but also the cost of capital and finance to fund them.
This was just one of the reasons the industry gave for the lack of successful bids for offshore wind projects in Allocation Round 5, the results of which were shared in September.
Another reason is the structure of the auction itself. AR5 saw fixed-bottom offshore wind moved into “Pot 1” meaning it competed directly with established and potentially cheaper technologies like solar and onshore wind for the first time.
The administrative strike prices in that pot also put offshore wind among the most competitive technologies, with a maximum price of £44/MWh, compared with £47 for solar and £53 for onshore wind. (These are indexed to 2012 prices to ensure consistency, but reflect an actual price of around £60/MWh today, compared with wholesale prices that trend closer to £100/MWh.)
Following today’s news, RenewableUK‘s chief executive Dan McGrail said: “There is the potential for the Government to attract a record level of private investment in offshore wind projects next year, with at least ten projects likely to be eligible, able to power 8.5 million homes each year and reduce the UK’s need for gas by 39%.
“The framework they’ve set out today is a significant step forward in securing this. 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”.