The government has raised the administrative strike price for offshore wind by 66% for the next Contracts for Difference (CfD) round.
This increase will mean that the maximum guaranteed price successfully bid offshore wind projects will receive in Auction Round 6 (AR6) will be £73/MWh, up from £44/MWh in the previous auction round.
Floating offshore wind’s strike price also saw a significant increase of 52%, jumping from £116/MWh to £176/MWh.
AR6 will also grant offshore wind a separate pot in”recognition of the high number of projects ready to participate.
These low strike prices meant that no offshore wind projects partook in AR5, as it was not deemed economically viable to projects to compete.
The energy industry warned that low strike prices and overall scheme budget will jeopardise investment, and its 50GW offshore wind capacity target by 2030, especially as, according to Energy UK’s predictions, future offshore wind developments will come almost exclusively from the CfD scheme.
The increased strike prices have been praised by the UK’s energy industry, for being in line with project requirements to become economically viable following inflation in their supply chains, which, according to energy company Ørsted, has increased costs by 20-40%.
“Offshore wind is the flagship technology for the UK in terms of meeting our net zero targets. It’s also a critical one to ensuring our energy security through generating more clean domestic power – at the same time as boosting our economy and creating jobs,” said Emma Pinchbeck.
“So we very much welcome the government responding to the increased global competition and the economic challenges facing developers by showing more ambition and giving greater confidence to investors, which will help build a domestic green powerhouse that benefits our own economy and people.”
Applications for Auction Round 6 are scheduled to open on 27 March 2024.
Consultation published on incorporating non-price factors into AR7
The government has also published a consultation today (16 November) inviting views on how non-price factors, now Sustainable Industry Rewards, could be incorporated into the later 2025 auction (AR7).
This would be offshore and floating offshore wind specific, allowing projects to receive additional payments for reducing carbon emission in their supply chains or adding social benefits, such as investing in high skilled jobs.
“Ensuring that the UK continues to unlock investment in renewables is critical to improve Britain’s energy security, drive economic growth, support thousands of new green jobs and enable us to continue to create a lowest cost electricity system for billpayers. With intense international competition for investment in renewables, we welcome the strong commitment to the sector shown by government today, which demonstrates that the UK is intent on remaining a global leader in offshore wind, as well as innovative technologies like floating wind and tidal stream,” said Dan McGrail, chief executive at Renewable UK.
“There is the potential for the government to attract a record level of private investment in offshore wind projects next year, with at least 10 projects likely to be eligible, able to power 8.5 million homes each year and reduce the UK’s need for gas by 39%. The framework they’ve set out today is a significant step forward in securing this.
McGrail concluded: “Although renewables haven’t been immune from the recent rises in financing and supply chain costs which all major infrastructure projects have faced, they remain the lowest cost means of generating new electricity. Even at these new prices, there is still no cheaper way to meet the UK’s rising electricity demand and increase our energy security.”
