UK to Set Sail to Subsidy-Free Offshore Wind Farms

Illustration (Image source: Ofgem/ archive)

As the UK government is scheduled to announce the winners of the Contracts for Difference (CfD) auction in autumn, projections on the offshore wind prices are emerging, with results of the latest offshore wind tender in Germany setting a benchmark. 

Even though the UK will wait a little longer for the first subsidy-free offshore wind power, the ongoing CfD auction is expected to set the country on the path to having non-subsidised offshore wind farms, Bloomberg New Energy Finance (BNEF) writes.

MHI Vestas’ outlook forecasts that offshore wind power in the UK will still need government’s support, but the outcome of this auction will show that there is a “trajectory toward subsidy-free pricing in future offshore wind auctions,” according to BNEF, which says up to seven offshore wind projects may qualify to bid.

Looking at the offshore wind tender results achieved in Denmark and the Netherlands, the UK would need to reach bids from GBP 60/MWh to GBP 69/MWh. This is with grid costs excluded, since in the UK developers are financing site surveys and grid connections, while in Denmark and the Netherlands these expenses are paid by utilities companies or the government.

“For it to be shockingly cheap in the way that Denmark and the German auction have been, a price in the 60s would be amazing,” BNEF quotes Emma Pinchbeck, executive director of RenewableUK, as saying. “My personal view is that a price in the 70s is not unlikley.”

Renewable energy developers are competing for GBP 290 million worth of contracts. Eligible projects for this CfD round are those planned to be commissioned in 2021/22 and 2022/23.

Contracts for Difference are won through a competitive process which drives down energy costs for consumers and guarantees companies a certain price for the low-carbon electricity they produce over 15 years.

The auction process will continue over the coming months and is expected to draw to a close by the autumn, when the winners of the auction and final clearing prices will be announced.

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