UK Increases Offshore Wind Strike Price Ahead of Next Auction

Contracts & Tenders

November 16, 2023, by Adnan Durakovic

The government of the United Kingdom has increased the maximum strike price for offshore wind projects in the next Contracts for Difference (CfD) auction by 66 per cent for fixed-bottom and by 52 per cent for floating wind projects.

The maximum strike price for fixed bottom offshore wind projects has been increased from GBP 44/MWh to GBP 73/MWh, and from GBP 116/MWh to GBP 176/MWh ahead of Allocation Round 6 (AR6) next year.

The government said the increases were made after ”an extensive review of the latest evidence, including the impact of global events on supply chains,…”.

In AR6, offshore wind will also be given a separate funding pot in recognition of the high number of projects ready to participate, the government said. This is expected to ensure healthy competition among a strong pipeline of projects, helping the UK deliver on its ambition of up to 50 GW of offshore wind by 2030, including up to 5 GW of floating offshore wind.     

”Today we have started the process of our latest Contracts for Difference auction for renewables, opening in March next year,” the UK’s Energy Security Secretary, Claire Coutinho, said.

‘‘We recognise that there have been global challenges in this sector and our new annual auction allows us to reflect this. This is a vital part of our plan to have enough homegrown clean energy, bringing bills down for families and strengthening our energy independence.”

The CfD scheme ensures renewable energy projects receive a guaranteed price from the government for the electricity they generate. The UK is already home to the world’s five largest operational offshore wind farm projects and has increased electricity generation from renewables from six per cent in the first quarter of 2010 to 48 per cent in the first quarter of this year.

”Last year’s Contracts for Difference scheme saw more than 90 clean, homegrown energy projects and today we have shown our ongoing commitment to retaining our global leadership in renewable energy,” the UK’s Minister of State for Energy Security and Net Zero, Graham Stuart, said:   

”This critical update to the scheme’s design provides further clarity and confidence to the offshore wind sector and ensures the scheme remains competitive for renewable developers investing in new low carbon technologies.  I look forward to securing another year of successful contracts in 2024, creating skilled jobs, reducing emissions and delivering maximum amounts of reliable clean energy for the British public.”

2025 Auction to Include Environmental and Economic Sustainability Considerations

The UK government has also published developed proposals to review applications from the 2025 auction not just on their ability to deliver low-cost renewable energy, but also on how much a project strengthens the environmental and economic sustainability of the industry. As part of this, a project’s social impact will also be considered – including how supply chains affect jobs and communities.

The consultation invites views on how Sustainable Industry Rewards, formerly non-price factors, could be incorporated into the 2025 auction process. This would be for offshore wind and floating offshore wind companies and would mean additional payments if they reduce the carbon emissions in their supply chains, or if they improve their social benefits, ensuring AR7 is the cleanest and most impactful auction yet.

This could be done by investing in high-skilled jobs, using more environmentally friendly factories to assemble components, such as wind turbines, investing in new manufacturing facilities or skills in deprived areas, or finding new, innovative ways to reduce their carbon emissions, the government said.

The introduction of annual auctions last year means project developers now have more frequent opportunities to participate. This is said to allow the government to respond more quickly to ensure the scheme continues to support the sector, maintain investment, and continue its success.

The government said it is also taking steps to ensure homes and businesses across the country can access the electricity produced from these new renewable projects by accelerating grid infrastructure and connections. A Connections Action Plan is expected to be published later this year to reform the connection process and reduce connection timescales.

”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%,” RenewableUK’s Chief Executive Dan McGrail said.

”The framework they’ve set out today is a significant step forward in securing this. 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.”

The industry and stakeholders have welcomed the increases in strike prices as a signal that the government has recognised pressures caused by global supply chain issues and inflation within the industry.