UK Will Provide Record $1B in Support to Offshore Wind in Next Auction

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The UK government is planning to offer a record amount of support in the next round of offshore wind energy auctions scheduled for this year. It comes as the latest effort to kick start the next phase of renewable energy development in the UK after they fell short in 2023 with no bidders in the previous round of auctions.

The UK had been at the forefront of offshore wind energy development and with approximately 14 GW already operational continues to have the largest installed base in Europe. China however surpassed the UK as the world’s leader and then with the impact of inflation and supply chain issues, the industry was further handicapped in the UK.

The government’s goal is to have 50 GW of offshore wind energy capacity operational by 2030. According to a report in the Financial Times, this year could see as much as 9 GW of new offshore wind projects bid for contracts.

The UK uses a scheme known as Contracts for Difference (CfD) where the wind farm developers bid for and receive a guaranteed price for the electricity generated at its sites. If the price of electricity falls below the agreed price the government supports it and if it goes above the companies rebate the extra to customers. The government argues that this certainty is critical for developers’ planning and has encouraged additional investment in the emerging sectors. 

The government’s Department for Energy Security and Net Zero confirmed on Wednesday that the new government budget includes £800 million (more than $1 billion) in funding for the upcoming sixth auction. It is more than four times the amount committed in 2023 and sets a new record for the government’s contribution.

It is the second key step designed to support the auctions and attract bids from the leading developers. Previously, the government reported that it was raising the cap price on electricity in the auction to £73 per MW. It is nearly double the £44 in 2023 which the industry argued was too low to make development economical. The guaranteed price is provided for 15 years with the latest round of contracts expected to begin in 2027.

In addition to not receiving bids in the September 2023 auctions, the Swedish energy company Vattenfall in July 2023 canceled planned UK projects citing the changed economics of the industry. The company won its Contract for Difference (CfD) in July 2022 for Boreas, which was to have an installed capacity of 1.4 GW and was due to deliver its first power in 2027. The zone with the three wind farms was to consist of between 180 and 312 turbines with a total capacity of 3.6 GW. 

In the first renewed positive sign for the industry, RWE in December 2023 agreed to buy three offshore wind farm projects which were in a late stage of development from Vattenfall in a deal that valued the wind zone at approximately $1.2 billion. Now, hopes are high for a strong showing in the next round of the auctions.

In addition to increasing its support for offshore wind, the government also earmarked £200 million for other forms of renewable energy. This includes a third round for tidal energy projects, as well as support for onshore wind, solar farms, geothermal, and to support the continued development of floating offshore wind farms.

The government however also drew criticism for adding another year of tax credits for the North Sea oil industry now running till March 2029. In addition, they deferred support for new “small modular reactors,” a concept to expand the use of nuclear power by developing new technologies.

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