Government Auction for Offshore Wind Receives Zero Bids

10 Sep, 2023

Government Auction for Offshore Wind Receives Zero Bids

Developers did not secure new offshore wind projects in a crucial government auction, dealing a setback to the UK's renewable energy strategy. The auction results revealed a lack of bids for new offshore wind farms, while agreements were reached for solar, tidal, and onshore wind initiatives. Developers argued that the electricity generation prices were set too low to make offshore wind projects economically viable.

The government cited a "global rise" in inflation affecting supply chains as a challenge for projects. It also noted that similar outcomes had been observed in countries like Germany and Spain. The Department for Energy Security and Net Zero announced funding for "significant numbers" of solar power, onshore wind, tidal energy, and, for the first time, geothermal projects, which use ground heat for power generation.

However, the absence of offshore wind projects poses a challenge to achieving the goal of 50 gigawatts (GW) of offshore wind by 2030, compared to the current capacity of 14 GW. Renewable energy advocates argue that alternative sources like solar cannot replace the substantial power generation of offshore wind, which is considered a cornerstone of the UK's renewable energy sector.

Despite offshore wind being a vital component of the UK's renewable energy landscape, companies have faced increased costs for constructing offshore farms due to rising expenses for materials like steel and labor. The UK holds a prominent position in offshore wind, housing the world's largest four farms, which contributed to 13.8% of the country's electricity generation in the previous year.

The government's annual auction invites companies to bid for renewable energy projects and secure contracts for supplying electricity to the UK grid. The Contract for Difference (CFD) arrangement ensures that projects receive a guaranteed price from the government for their electricity production, providing companies with the confidence to invest. If electricity prices exceed the set price, companies return the excess to energy suppliers, potentially reducing bills. Conversely, if prices fall below the guaranteed price, energy suppliers and customers pay the difference to the company.

Hopes were high that the latest round of offshore wind projects could generate five gigawatts of power, sufficient to power five million homes. However, wind farm developers had been warning for months that the government had not adequately considered the soaring development costs, with the £44 per megawatt-hour price floor falling short of addressing these concerns.