08/09/2023 | Offshore wind
Industry warns urgent action needed to restore investor confidence following renewables auction
8 September 2023 - RenewableUK press release
Industry body RenewableUK is calling on the Government to take urgent action to rebuild investor confidence in the UK offshore wind market following a clean power auction that risks undermining targets to boost energy security and jeopardising the industrial opportunities of offshore wind – one of the UK’s most important growth sectors.
The latest auction of clean power contracts has failed to secure any new offshore wind, a technology crucial to meeting the Government’s energy security targets.
In response, RenewableUK is calling for urgent action from Government to fix the investment framework through a package of reforms to the CfD, support for supply chains and fiscal measures to attract clean energy investment into the UK in the face of global competition.
The results of the 5th round of Contracts for Difference (CfD), published this morning, show that 3.7 gigawatts (GW) of new renewable capacity was successful overall. This is the lowest level since 2017 and just over a third of the 10.8GW in last year’s auction.
In this auction round for clean power contracts, up to 5GW of offshore wind was eligible to compete which could have powered nearly 8m homes a year and saved consumers £2bn a year compared to the cost of electricity from gas – a £24 annual saving on an average household bill. However, offshore wind projects did not bid into the auction as a result of the maximum price being set too low.
Industry has previously warned that prices needed to rise to reflect the impacts of the invasion of Ukraine, inflation in key commodities like steel, and increased financing costs from spiralling interest rates. However, offshore wind developers saw the maximum price they could bid in this year’s auction cut by £2 to £44 per megawatt hour (MWh).
The auction secured 1.9GW of solar at £47.00 per megawatt hour and 1.5GW of onshore wind capacity at £52.29/MWh, as well as 53 megawatts (MW) of tidal power at £198.00/MWh. The new projects will come online from 2025 onwards. Industry is warning that the failure to secure any new offshore wind capacity risks putting our energy security and net zero targets at risk, keeping the UK dependent on fossil fuels for longer. The auction also failed to secure any innovative floating offshore wind farms, a sector in which the UK aims to be a world leader.
So far, only 27GW has been secured of the Government’s 50GW offshore wind target for 2030 and future auctions will now have to support 4.5-5.8GW a year to get back on target. National Grid forecasts that – regardless of progress on other renewables and nuclear – we will need at least 73GW of offshore wind by 2035 to decarbonise the grid. Offshore wind generates more power per megawatt of capacity than any other renewable source, and the UK’s unique wind resource and shallow seas mean it has been the central technology in plans to end the UK’s reliance on fossil fuels for electricity.
Commenting on the results, RenewableUK CEO Dan McGrail said:
“Industry has warned that rising costs should have been properly priced into this auction. If the UK isn’t offering prices that allow investors to make a return, they will simply invest elsewhere. These results should set alarm bells ringing in Government, as the UK’s energy security and net zero goals can only be met if we have offshore wind as the backbone of our future energy system. We need the Government to show that the UK is open for business.
The failure to secure any new offshore wind is a major blow for consumers that could, and should, have been averted. Building wind farms means we stabilise the cost of energy for the long-term and reduce our dependency on fossil fuels, prices of which can be manipulated by dictators and despots. It’s not too late to get back on track, but without urgent changes, we risk pricing ourselves out of the global race for clean energy investment.
Renewables don’t only enable us to fight climate change, they also help to drive economic growth, creating jobs and supporting supply chains across the UK. This result for offshore wind means putting economic growth on hold, with over £10bn in investment and thousands of jobs delayed.
RenewableUK’s Executive Director for Policy and Engagement, Ana Musat, said:
“There has been a perfect storm of inflation, supply chain disruption and spiralling interest rates that mean the cost of financing and building offshore wind have risen sharply. Offshore wind remains the UK’s cheapest option for large-scale power, so slowing deployment will cost more and leave consumers exposed to volatile global gas markets for longer.
“We urgently need Government to provide reassurance that next year’s auction round will offer investable parameters, and that in the longer term a joined-up strategy for maximising the potential of the offshore wind sector is developed. As part of that, the industry needs to see credible plans to evolve the CfD to maximise deployment of our cheapest forms of electricity generation, a commitment to develop and fund supply chain growth and an internationally competitive fiscal regime which attracts capital into the UK”.
(ends)
Notes
For further information, contact
Robert Norris, Head of Communications
07969 229 913 Robert.Norris@RenewableUK.com
- Strike prices and maximum bid prices (administrative strike prices) are expressed in 2012 prices as per DESNZ CfD Allocation Framework. Successful projects in this auction will come online between 2025-28
- The price of offshore wind in CfD auctions fell from £114/MWh in 2015 to £38/MWh in last year’s auction.
- £1.64bn figures on annual savings from offshore wind compared to gas in current prices, using the £75/MWh price of the successful Irish offshore wind auction in June 2023 (€86.06/£75 per MWh) as comparison point. Gas price from DESNZ Electricity Generation Costs 2023 Report
- Load factors (energy production per megawatt of capacity) at CfD AR5 are: solar 11.5%, onshore wind 42.7 %, offshore wind 63.3%. Power production from 1 large (15MW) offshore wind turbine equates to 82MW of solar capacity. See CFD AR5 Allocation Framework for more
- Price comparison (in current prices) of offshore wind prices from AR4, AR5, other generation technologies and wholesale electricity cost in Oct-Dec 2023 Ofgem Price Cap:
AR4 Offshore Wind Strike Price
New Nuclear
2023 Irish Offshore wind Auction
2025 Wholesale Price
AR5 Max Offshore Wind Strike Price
Current Ofgem Price Cap
£52
£125
£75
£150
£60
£124
- National Grid ESO scenarios for meeting 2035 decarbonisation targets include 72-89GW of offshore wind capacity. See 2023 Future Energy Scenarios for more
- Homes powered equivalent calculated using DESNZ Allocation Round 5 load factor and average household consumption of 3.509MWh per annum. See DESNZ consumption statistics for more
- Capacity (MW) of renewables securing contacts at previous auction rounds:
Allocation Round
AR1
AR2
AR3
AR4
Offshore Wind
1,162
3,196
5,466
6,994
Onshore Wind
749
n/a
n/a
888
Remote Island Wind
n/a
n/a
275
598
Solar
39
n/a
n/a
2209
Floating Offshore Wind
n/a
n/a
n/a
32
Tidal Stream
0
0
0
41
Other Renewables
157
150
34
30
Total
2,107
3346
5,775
10,792
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