The UK Government is consulting on so-called “sustainable industry rewards” for what it hopes to be its “most impactful” Contracts for Difference (CfD) offshore wind round yet.
Allocation Round 7 (AR7) is due in 2025 and will look beyond strike price for offshore wind developers seeking to win a contract.
Speaking at Energy Voice’s ETIDEX event in Aberdeen, UK energy minister Graham Stuart said: “This could be done by using more environmentally-friendly factories to assemble components, investing in new manufacturing facilities in deprived areas, or finding new, innovative ways to reduce carbon emissions.”
The “rewards”, trailed earlier this month in a wider announcement on improvements to the upcoming AR6 round, are formerly known as non-price factors and the UK Government is inviting views on what they should be.
They come as low strike prices on offer in previous rounds are now in conflict with supply chain constraints and increasing costs – and as a historic singular focus on bringing down the price, successful though it has been, has come at the cost of other benefits like bolstering the UK supply chain.
British Steel revival
Earlier this year, in his landmark report to the UK Government, the former offshore wind champion Tim Pick said such measures should be included in future CfD rounds, with a potential example being incentivisation of the green steel industry in the UK.
Speaking to Energy Voice on the sidelines of the ETIDEX conference, Mr Stuart said that’s one area the rewards the AR7 CfD could factor.
“Absolutely. That’s why the government recently announced £500 million to support electric arc furnaces, a much greener system, in Port Talbot.
“Floating offshore wind, as we’ve just heard, will have an enormous amount of steel above the water, but possibly even more below the water. So having green steel serving on the development of our world-leading green floating wind industry is an exciting prospect.
“This isn’t just about meeting net zero. It’s not just about providing energy that’s affordable and sustainable and British. It’s also about laying the foundations for our future economy. And as we and we’ve already seen how decarbonisation can support oil and gas to meet its targets, at the same time, it boosts the opening and strengthening of floating offshore wind.”
Mr Stuart said it could form “part of a revival of British steel” as floating offshore wind ramps up in Scotland and the Celtic Sea.
AR6 and Ar7 CfD rounds
It comes ahead of the AR6 round due next year, where the government has taken steps to improve the attractiveness of the auction.
AR5, earlier in 2023, received no bids for offshore wind developers amid low strike prices and hefty inflationary costs.
Responding, the UK Government has upped AR6’ strike price by 66% from £44/ MWh to £73/ MWh, and by 52% for floating wind projects from £116/ MWh to £176/MWh.
Offshore wind is also getting 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”.
Aside the AR7 CfD piece, Mr Stuart highlighted the importance of maintaining the North Sea oil and gas industry going through the energy transition.
He said calls to cease new oil and gas licences is “like saying to Sainsbury’s you can carry on trading, but you can’t restock”.
See the clip below for more: