Offshore needs wind at its back to stay on course

The next two Contracts for Difference (CfD) auctions must deliver a big increase in offshore wind capacity if the Government is to stay on track for its 2030 50GW target, according to new analysis from Energy UK (attached).

The CfD scheme has played a vital role in the UK’s world-leading expansion of clean energy, in particular offshore wind, driving down costs for customers while providing necessary certainty for investors in these long-term projects.

However the shortfall left by the failure of the last auction round (AR5) to attract any bids from new offshore wind projects means that the next two rounds (AR6 and AR7) must deliver around 20GW of new capacity if this is to be in operation by 2030. Given the resulting demands on supply chain, workers and other resources, this extra 20GW will also need to be split across these next two annual rounds. Further pressure has come from challenges facing developers due to the low prices in AR4 with one major offshore wind project having been terminated.

Energy UK’s analysis has found that if the forthcoming rounds only deliver at the rate seen in previous auctions, then the UK will fall short of its 2030 target by 7GW – an amount which could otherwise supply a quarter of the power used by households in 2022, cut gas imports by almost a fifth (again in comparison to 2022), or reduce emissions equivalent to those produced by the whole of Essex.

Following AR5, the Government has made an important first step in announcing an increased strike price ahead of the next round in September but must now ensure that other parameters such as the budget and the reference prices work together to meet these ambitions and the increased pace of delivery required. Aside from the auctions themselves, it also remains vital to have policies that encourage investment as well as pushing ahead with work to tackling infrastructure challenges around planning and grid connections.

Energy UK’s Deputy Director, Adam Berman, said:

“Offshore wind plays a vital role in the Government’s clean energy ambitions as a homegrown source of power that will bring down bills, lower emissions, and bolster our energy security.  

“Getting the auction parameters wrong yet again risks spurning these benefits as well as missing our own targets. As we saw last year with the failure to procure even a single offshore wind project, getting these wrong can result in an underpowered auction. This is the very definition of a false economy and has left us playing catch-up over the next two rounds. 

“Delivering an ambitious renewables programme in line with the Government’s targets means being realistic about the economic and market conditions that potential investors are facing. The size of the prize is huge – re-establishing the UK as a leader in offshore wind and sending a strong signal in the face of growing international competition for such investment.”