Modelling by ICIS analytics suggests that the government’s budget for offshore wind is still too low to meet its 2030 target to quadruple capacity.
Its forecasts suggest only 39GW of offshore wind capacity will be built by 2030 under a base case scenario.
The firm claims that even the announced increases to the Contracts for Difference (CfD) budget – up by over £500 million to reach a total budget of £1.5 billion – will not be enough to deliver on the goals the Labour party set in its manifesto.
The target to quadruple offshore wind capacity has seen the CfD pot for the technology increase up to £1.1 billion, which is a greater budget than all previous offshore wind pots combined.
However, ICIS analysis suggests that if the auction cleared at a base case scenario strike price of £60/MWh, a total of £3.2 billion would be needed to reach government targets.
The firm’s calculations work on the assumption that the government’s target capacity is 61GW by 2030, four times the amount ICIS forecasts for the end of 2024. The Labour party’s manifesto promises 55GW by 2030.
ICIS calculations show that if the auction cleared at the £60/MWh strike price, the £1.1 billion budget could finance 5.8GW of capacity. To reach 2030 targets, ICIS says offshore wind capacity in auction rounds six and seven needs to average 16.6GW each.
Were offshore wind to clear at its maximum strike price of £73/MWh, the budget would still only fund 4.3GW. Ahead of the sixth auction round (AR6), only 10.6GW of offshore wind projects have development consent, necessary to proceed to auction.
An uncertain future for offshore wind
In a report issued before the AR6 budget revelation, energy and climate think tank Ember warned the offshore wind industry would miss its 2030 capacity targets. The report, working on the assumed 55GW target, said that a 25% increase to the AR6 budget would deliver an additional 1GW commissioned offshore wind.
Beyond budgets, Ember suggested that structural change to the CfD mechanism was needed: The report suggests that after AR6 and AR7, the government “explore profit-sharing mechanisms to both reduce consumer bills and lower the risk of setting the strike-price too high”, as part of an overall plan to “evolve the CfD process to move a large number of sites through development”.
Indeed, in response to the budget increase, Sam Richards, CEO of the pro-growth campaign group Britain Remade, called the planning system “the biggest roadblock to building the new sources of clean energy”, saying its reform would be necessary for the increased budgets to have an effect.
He added: “It’s simply madness that it takes up to 13 years to build an offshore wind farm, despite construction of the actual turbines only taking two. Work still needs to be done to streamline environmental impact assessments and tackle baseless judicial reviews.”
In theory, the partnership with the Crown Estate announced alongside the official launch of Labour’s flagship Great British Energy company will speed up offshore wind planning process.
The Crown Estate, which operates independently and has a £16 billion portfolio of UK land and seabed, estimates that the partnership will lead to up to 20-30GW of new offshore wind developments reaching seabed lease stage by 2030.
