UK boosts offshore wind strike price by two-thirds after crisis talks with renewables industry
The UK Government has increased the maximum strike price for offshore wind projects in its Contracts for Difference (CfD) auction scheme, after the previous auction round failed to attract any bids from offshore wind developers.
The Department for Energy Security and Net-Zero (DESNZ) stated that it undertook an “extensive review of the latest advice” after the 2023 CfD round announced in September secured lower capacity and output than the 2022 round.
This was largely due to no bids being made by offshore wind developers – many of whom cited rising supply chain costs.
Warnings abound that, without intervention, the UK risked missing its 2030 goal to host 50GW of offshore wind and international investors could well look elsewhere.
The Labour Party went so far as to call the results of this CfD round “an energy security disaster”.
DESNZ has today (16 November) confirmed that it will intervene by increasing the maximum strike price for offshore wind farms by 66%, to £73 per MWh. An increase of 52%, to £176, has been announced for floating offshore wind projects.
Additionally, offshore wind developers will start being paid for not only their ability to deliver low-cost clean energy generation but also their provision of wider socio-economic benefits, described by the Department as “non-price factors”. This change will apply from 2025.
Non-price factors set for consideration include investment in local jobs, both directly and in supply chains, plus manufacturing components using lower-impact processes.
Energy Security and Net-Zero Minister Graham Stuart called the changes a “critical update” and said they will provide “further clarity and confidence to the offshore wind sector”.
Maximum bid prices have also been boosted for other technologies; an uplift of 32% has been promised for geothermal projects for example, while the increase for solar is 30%.
Green economy reaction
Vattenfall, which has paused work on its 1.4GW Norfolk Boreas offshore wind farm due to mounting costs, described today’s changes as “a very positive signal that the Government understands the current market situation”.
E3G’s senior policy advisor Susie Elks says the changes “suggest that the Conservatives, despite anti-net-zero rhetoric, remain aware that renewables are still the cheapest new source of electricity and that the green economy is the growth engine of the future.”
The Energy and Climate Intelligence Unit’s (ECIU) energy analyst Jess Ralston was more cautious in her optimism. She said: “The Government appears to have learned its lesson and listened to the wind industry’s calls for higher contract prices that reflect real-world inflation, in no small part fuelled by the gas crisis. This is a significant step along the road to restoring investor confidence in the UK’s offshore wind market.
“But whereas the UK has previously led, many Asian and other countries around the world are now building offshore wind to boost energy security and cut emissions, so we increasingly find ourselves in a competition for investment.
“The Autumn Statement provides an opportunity for the Chancellor to show that the top politicians, including the Prime Minister, see the opportunity net-zero offers and are willing to back key green industries like offshore wind.”
Chancellor Jeremy Hunt is set to present his Autumn Statement next week. He is under increasing pressure to bring forward a British response to increased renewable energy and cleantech subsidy packages on offer in markets such as the US, EU and Japan.
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