Has UK green power auction put offshore wind ‘back on track'?

Offshore wind is “back on track” in the UK according to some following the results of the country’s latest renewable energy auction, although others warned the government procured just half of what was needed to hit its 2030 targets as time runs short for new projects.

The UK has handed out contracts-for-difference (CfD) to 9.6GW of renewables projects in its latest auction round, known as AR6, including 5.3GW of offshore wind projects.

“The success of today’s auction sends a clear signal that the UK is back in the global race for clean energy investment,” said RenewableUK chief Dan McGrail.

After the “failure” of last year’s edition, when no offshore wind developers bid after deeming the price on offer for power unviable, McGrail said it was “essential that this auction succeeded and the fact that nine major offshore wind projects have secured contracts will increase investor confidence.”

Almost 3.8GW of contracts handed out went to new offshore wind projects, including Orsted’s 2.4GW Hornsea 4 and Iberdrola’s 960MW East Anglia Two, which were awarded ‘strike prices’ of £58.87/MWh at 2012 prices ($71.1/MWh). There was also a 400MW contract handed out to the Green Volt floating wind project.

Another 1.6GW of contracts went to projects previously awarded contracts in the 2022 auction round. These included Hornsea 3 (developed by Orsted), Moray West (Ocean Winds), East Anglia Three (ScottishPower) and Inch Cape (China’s Red Rock Power and Ireland’s ESB).

With costs for delivering offshore wind projects having skyrocketed since the AR4 auction, the government had introduced a scheme allowing them to re-bid up to 25% of their capacity in this edition. Every project awarded a contract in AR4 took that opportunity.

That led to their developers landing new CfDs with a strike price of £54.23/MWh for a portion of those projects, up from £37.35/MWh in 2022.

The strike prices for new and re-bid offshore wind projects are significantly below the maximum the government had been prepared to pay in this auction, set at £73/MWh.

‘Crucial to build momentum from this’

“Offshore wind is back on track after last year’s misstep which is great news for consumers,” said Keith Anderson, CEO of Iberdrola subsidiary ScottishPower, whose East Anglia Two project was successful in this round.

“The only solution to weaning the UK off volatile fossil fuels which are the root cause of increasing bills is more clean, green energy,” he said.

“This auction’s success shows this tried and tested investment mechanism, replicated globally, delivers exactly the scale of action needed, with billions of pounds to be pumped into the British economy replacing ageing, polluting infrastructure.”

Zoisa North-Bond, CEO of Octopus Energy Generation, said the auction result is a "big win and a clear comeback for Britain’s world-leading offshore wind industry."

Duncan Clark, head of UK & Ireland at Orsted, struck a more conservative tone in his reaction, saying the “important takeaway from this allocation round is that progress is being made, and it’s crucial that this momentum continues to grow.”

The new Labour government has “shown it takes renewable energy seriously, and we’re confident it will continue working with the sector to increase the volume of projects deployed in the UK.”

Government must take ‘hard look’ at CfD system

The auction does however leave the government with a mountain to climb to hit its own pledge to quadruple offshore wind from 15GW of installed capacity today to 60GW by 2030, including 5GW of floating wind.

Renewable energy think tank Ember had estimated 10GW of new capacity would be needed in this round and next year’s edition to keep that target in sight.

Around 10GW of offshore wind projects had been eligible to bid in this year’s auction, including RWE’s Norfolk Vanguard West and Norfolk Vanguard East (2.8GW) and Awel y Môr projects (1.1GW).

Greenpeace UK’s political campaigner Ami McCarthy said the results show the government “clearly needs to take a hard look at how this system is working.”

“5GW of offshore wind is of course welcome, but it is only about half of what is required each year to meet the government’s 2030 target.”

She acknowledged that after the “catastrophic failure” of the last auction, when no offshore wind projects were awarded, the new government has faced an “uphill battle.”

This year's round now “urgently needs to be followed up with a much bigger auction next year,” she said, along with investment for “faster grid connections, better planning, and more storage to hold the green power for when it’s needed.”

‘Breakthrough success’ for floating wind

One undoubted bright spot from the auction was the awarding of a contract for what could be Europe's first commercial-scale floating wind farm, Green Volt.

The 560MW floating offshore wind project is being developed off Scotland by UK-based Flotation Energy and Vargronn – a joint venture between Eni's Plenitude unit and HitecVision.

It was awarded a CfD deal for 400MW of its capacity at a strike price of £139.93/MWh, with the maximum the government was willing to pay for floating wind projects set at £176/MWh for this year’s auction.

“This award is a clear vote of confidence from the UK government in our plans to build Europe’s first commercial scale floating offshore wind farm,” said Stephen Bull, CEO of Vargronn.

“It is fantastic news for both our project and the wider floating offshore wind sector. Green Volt will stimulate investment in new port infrastructure, helping accelerate the development of more floating wind farms.”

Nicol Stephen, CEO of Flotation Energy, added that Scotland is “already a global pioneer” in floating wind and the contract will “kickstart the next phase of Europe’s largest floating wind project.”

Other floating wind projects eligible to bid in this round included the 100MW Pentland wind farm, being developed by Copenhagen Infrastructure Partners, and the 100MW Erebus site in the Celtic Sea, being developed by Simply Blue Group and TotalEnergies.