8 September 2023
The Chemical Engineer, by Amanda Jasi
HAVING failed to heed warnings that its offshore wind budget in the latest Contracts for Difference (CfD) round was too low to address rising development costs, the UK government has failed to secure any new offshore bids. The record 95 successful projects – up from 93 last year – are set to deliver 3.7 GW of renewable energy, down from the 11 GW achieved last year led by offshore wind.
Launched in 2014, the CfD scheme is the government’s main mechanism for supporting low carbon electricity generation. It ensures that projects receive a guaranteed price from the government for the electricity they generate to encourage investment in the UK.
As it announced the auction’s results, the government noted that in the first quarter of this year, renewables supplied 48% of the UK’s electricity, up from just 7% in 2010.
'These results should set alarm bells ringing’
In this fifth CfD round, onshore projects more than doubled compared to last year. The government secured 24 onshore wind projects, primarily in Scotland with one in Wales, which will deliver half the total secured capacity. Eleven successful tidal projects will deliver more than 50 MW of energy, while geothermal’s first appearance in the scheme will see three projects to supply 12 MW of energy.
The UK government acknowledged the absence of offshore and floating wind allocation, implicating the global rise in inflation and the impact on supply chains. However, industry had forewarned government that the offered support through the CfD scheme was not enough to offset rising costs caused by these issues.
In July, energy trade associations Energy UK, Scottish Renewables, and RenewableUK, sent a letter encouraging the government to make urgent changes to the clean energy auction scheme, including increasing the offshore wind budget. Moreover, that same month, Swedish energy company Vattenfall announced that it would halt development of an offshore project off the coast of Norfolk due to significantly deteriorating market conditions since the war in Ukraine, and the effects of rising costs and supply chain delays. Norfolk Boreas, part of a wider offshore project, was among the successful projects in the fourth CfD allocation round.
Sam Richards, CEO of economic growth campaign Britain Remade, accused the government of “complacency and incompetence” leading to the failure to secure offshore wind contacts. He, along with other critics including shadow climate and net zero secretary, Ed Miliband, highlighted that the failure would cost UK billpayers £1bn (US$1.25bn) in savings.
Keith Anderson, CEO of ScottishPower, a world leader in wind energy, explained that the “economics simply did not stand up”.
“The CfD process is recognised globally as a lynchpin of the UK’s offshore success, but it also needs to flex to keep pace with the world around it.” He continued: “We need to get back on track and consider how we unlock the billions of investments in what is still one of the cheapest ways to generate power and meet the UK’s long-term offshore wind ambitions for the future.”
Dan McGrail, CEO of RenewableUK, stressed that the result for offshore wind would put economic growth on hold, delaying more than £10bn of investment and thousands of jobs. “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,” he added.
Ana Musat, executive director for policy and engagement at RenewableUK, urged the government to reassure that next year’s auction round would offer “investible parameters”, and to develop a long-term strategy to maximise the potential of the offshore wind sector.
“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.”
Richard Sandford, co-chair of senior government and industry forum Offshore Wind Industry Council, noted that if all the offshore projects eligible to bid in the auction had done so, the government could have secured enough power for the equivalent of 5m homes. He said this year’s results are “disappointing” but added that industry would continue to work with government to reform the auction process to secure more capacity next year and beyond.
The government stressed that it reviews its approach ahead of each CfD round, adding that it is already gearing up for the sixth round of auctions in 2024.
The CfD news came on the heels of another wind-related disappointment, with the UK government announcing new measures to boost onshore development that industry figures said missed the mark.