UK Set to Provide Record GBP 800 Million Support for Offshore Wind Projects

Business & Finance

March 7, 2024, by Adnan Memija

The UK government has revealed the budget of over GBP 1 billion (approximately EUR 1.2 billion) for this year’s Contracts for Difference (CfD) Allocation Round 6 (AR6) with the majority of it, GBP 800 million (around EUR 936 million), earmarked for offshore wind.

The Department for Energy Security and Net Zero (DESNZ) confirmed that over GBP 1 billion will be set aside for the budget, divided into three pots.

Within the overall budget, GBP 120 million is designated for established technologies like solar and onshore wind in Pot 1, while GBP 105 million is set aside for emerging technologies such as floating offshore wind and geothermal in Pot 2.

According to DESNZ, following an extensive review of the latest evidence, including the impact of global events on supply chains, the government has allocated a record GBP 800 million for offshore wind, making this the largest round yet, with four times more budget available to offshore wind than in the previous round.

This follows the increase in the maximum price for offshore wind and floating offshore wind in November and will help to deliver the UK’s ambition of up to 50 GW of offshore wind by 2030, including up to 5 GW of floating offshore wind, according to the government.

Last year, CfD Round 5 attracted no investors with the former maximum strike prices set at GBP 44/MWh for offshore wind with fixed-bottom foundations, which was too low for the developers who were facing the consequences of inflation and supply chain challenges. The maximum bid price for floating wind was GBP 114/MWh.

Now, the maximum price available for offshore wind projects with fixed-bottom foundations has risen by 66 per cent, from GBP 44/MWh to GBP 73/MWh. The maximum strike price for floating offshore wind projects increased by 52 per cent, from GBP 116/MWh to GBP 176/MWh ahead of AR6 which will open on 27 March.

The funding for the support will be sourced from energy bills rather than taxation. However, if the price of electricity surpasses the predetermined rate, additional charges will be applied to wind power, with the excess funds returned to consumers.

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Some were not satisfied with the government’s decision, including the Association for Renewable Energy and Clean Technology (REA), who welcomed the increase in the CfD budget but said it is disheartened by the lack of sector-wide measures in the Spring Statement.

“This is a political budget above all that does not reflect the urgency of Net Zero and while we welcome the CfD budget announced alongside the Spring Statement today, and extension of the windfall tax on oil and gas excess profits, this is disappointing overall,” said Frank Gordon, Director of Policy, REA.

“In particular, the Chancellor had promised the sector a response to the US investment in green supply chains and manufacturing at the last fiscal event and to see very little once again on how we can ensure the UK does not miss out on the vital green jobs and investment up for grabs is very disappointing.”

RenewableUK also said that the uplift in clean energy budget is welcome, but opportunity to maximise offshore wind capacity in this year’s auction has been missed.

“However, the Treasury has missed the opportunity to maximise the amount of capacity which the UK could have secured in this year’s auction for new offshore wind farms. We have more than 10 gigawatts of capacity eligible to bid in this summer. Building this is essential if we’re to make up lost ground from last year’s auction and create the substantial pipeline required to accelerate supply chain investment and growth in the UK. This funding will only secure between 3 to 5 gigawatts,” said Dan McGrail, RenewableUK’s Chief Executive.

“This means a delay in attracting billions of pounds in private investment which we could have secured in this year’s auction to build and operate these projects, and opportunities to grow our supply chain to provide goods and services for projects here and abroad will not be maximised”.