Media

8 September, 2023
Riviera, by David Foxwell

Industry says the result of the auction “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 response to the auction and the absence of any offshore wind was neatly summed up by Regen director Johnny Gowdy, who said, “There has been a cock-up, and government now needs to move quickly to reassure investors, rebuild the offshore wind pipeline and work with industry to get the next CfD rounds right.”

Allocation Round 5 (AR5), the latest auction of clean power contracts under the contracts for difference (CfD) scheme, failed to secure any new offshore wind, a technology crucial to meeting the government’s energy security targets.

In response, RenewableUK and others are 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 fifth round of CfDs, published this morning, show that 3.7 GW of new renewable capacity was successful overall. This is the lowest level since 2017 and just over a third of the 10.8 GW in last year’s auction.

In this auction round for clean power contracts, up to 5 GW of offshore wind was eligible to compete which could have powered nearly 8M homes a year and saved consumers £2Bn a year compared with 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 (US$55) per megawatt hour (MWh).

The auction secured 1.9 GW of solar at £47.00 per MWh and 1.5 GW of onshore wind capacity at £52.29/MWh, as well as 53 MW of tidal power at £198.00 MWh. The new projects will come online from 2025 onwards. But 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 windfarms, a sector in which the UK aims to be a world leader.

So far, only 27 GW has been secured of the government’s 50 GW offshore wind target for 2030 and future auctions will now have to support 4.5-5.8 GW a year to get back on target. National Grid forecasts that – regardless of progress on other renewables and nuclear – the UK will need at least 73 GW 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.

RenewableUK chief executive 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 windfarms 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 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.”

Some responding to the lack of offshore wind in the auction were more outspoken. Britain Remade founder and campaign director Sam Richards said the failure to award a single contract for offshore wind in the latest round, “is the direct result of the government’s complacency and incompetence in the rules they set for the latest auction.” He said the “catastrophic outcome” will cost billpayers £1Bn a year.

“Ever since the CfD system was introduced in 2014, industry has driven down costs at every single auction round – to the point that, for a time, offshore wind was nine times cheaper than new gas plants. Yet, because of the war in Ukraine, the costs of core materials used in offshore turbines such as steel, aluminium and copper have skyrocketed, as they have for businesses across the economy.

“Despite this, Ministers and mandarins decided to ignore warnings from the industry that this would mean, for a short time, the cost of offshore wind would rise - while still being significantly cheaper than new gas plants.

“By capping the price the sector could bid at too low, government set it at a level that made it impossible for investors to meet their costs. And at the same time as the government capping the price at an unrealistic level, ministers have also failed to deliver the necessary planning reforms that will speed up delivery and cut costs.”

RenewableUK Cymru said it was “incredibly disappointed to learn there are no floating offshore wind winners in this year’s UK government renewable energy auction.”