UK Offshore Wind Auction Doubt Casts Shadow Over Potential Success

09 Sep, 2023

UK Offshore Wind Auction Doubt Casts Shadow Over Potential Success

In the forthcoming UK offshore wind auction, the anticipation is grim. Sources suggest that the number of bids to be unveiled may dwindle close to zero, casting doubts over its success. Offshore wind developers have consistently voiced their concerns regarding the government's set electricity price, deeming it inadequate to render projects financially feasible.

Prominent energy firms such as SSE and Vattenfall have opted out of participating, citing the government's failure to account for surging costs in steel and labor when determining the electricity price. If major, experienced, and well-funded companies find the economics unviable, prospects for others appear dim.

The government employs wind power auctions, using a Contract for Difference (CFD) arrangement, where bidders vie to offer rates at or below the set electricity price. Should prices exceed the set rate, companies must reimburse the excess to energy suppliers, potentially reducing bills. Conversely, if prices dip below the guaranteed price, energy suppliers and consumers compensate the difference to the company.

The £44 per megawatt hour price floor in this auction doesn't acknowledge development costs, which industry insiders claim have surged by 20% to 40% due to rising steel prices and wage hikes since the previous auction.

Additionally, electricity generators faced a windfall tax on profits from older projects, prompting reviews of future investments. The UK's offshore wind, vital for decarbonizing energy, contributed 14% of electricity in the previous year.

RenewableUK's CEO, Dan McGrail, underscores the importance of securing offshore wind projects to meet the government's ambitious 50-gigawatt target by 2050, warning of setbacks to energy security and net-zero goals if this auction fails.

Labour's Ed Miliband criticizes the Tories' energy policies, attributing higher energy bills to their failures. Some believe the government's move to ease onshore wind restrictions stems from expectations of the offshore wind auction's failure.

Questions also arise about the recent cabinet reshuffle, appointing Claire Coutinho as the new energy secretary. The Department for Energy Security and Net Zero remains committed to renewable energy expansion, citing impressive growth and significant investments.

Despite the challenges, renewable energy's role in the UK's energy landscape remains pivotal in achieving net-zero targets by 2035.