Offshore wind shortfall remains despite UK renewables auction 'shot in the arm', say analysts

The new government's decision to boost the budget for the upcoming UK renewable energy auction has been hailed as a “shot in the arm” for the sector, despite warnings that there is still not enough money to support all offshore wind projects ready to bid.

That includes a £300m uplift to the budget for fixed-bottom offshore wind, taking the total to £1.1bn. The government said that adds up to more money than has been allocated to it in all previous auctions combined.

“It is great to see government choosing to unlock more investment in renewable energy projects by increasing the budget for the next Contracts for Difference (CfD) auction,” said RenewableUK chief Dan McGrail.

The Conservatives responded by significantly boosting the ASP for the AR6 auction to £73/MWh for offshore wind, 66% higher than the previous round. If the ASP is set at a reasonable level, developers typically bid below this in the auction to ensure their projects – and not a competitor’s – secure a contract, given the limited money available.

Peter Lloyd-Williams, senior wind energy analyst at Westwood Global Energy Group, said the latest budget boost is a “valuable shot in the arm for the UK’s offshore wind industry and a just-in-time response” by the new Labour government.

While the budget increases are “substantial,” he said it’s the fact that this rise comes in combination with the increase in strike price for fixed-bottom wind that has "the potential to make a real difference”.

Keith Anderson, ScottishPower CEO, said the auction “needed a reset after last year” and welcomed the newly boosted budget, “which is an important investment signal to the industry to make Britain a clean energy superpower.

“This will unlock billions in private investment, support thousands of jobs, strengthen our energy security and produce the green and affordable power needed for decades to come.”

How much offshore wind can new budget support?

Labour has set a hugely ambitious target for offshore wind, aiming to have 55GW of fixed-bottom capacity in the water by 2030, up from around 15GW today.

Given the development of offshore wind farms takes many years to complete even after they are awarded a CfD contract, the window for bringing through new projects that could feasibly be delivered by then is already nearly shut, putting huge pressure on this and next year’s auction.

Energy think tank Ember had estimated the budget set by the Conservatives would only support 3-5GW of fresh offshore wind capacity, despite around 10GW being needed this year and next to get the UK back on track.

To support all the available capacity, she said the offshore wind budget would have to climb to £1.4bn.

McGrail warned that the new budget is still not enough to “unlock investment in all shovel-ready projects, so the government will need to ensure that the next auction rounds focus on project delivery”.

Leo Bertels, a managing consultant at BVG Associates, said estimating the exact impact of budgets on capacity that can be delivered is “always tricky” as it depends on what developers bid in the auction.

The BVG team has however estimated that the additional £300m for fixed bottom offshore wind could deliver around 1.5GW of extra capacity.

This chimes with an estimate from Aurora Energy Research, whose senior analyst Tom Betts said that “assuming an auction clearing price of £60/MWh, this auction could deliver 5.8GW of offshore wind capacity, 1.6GW more than under the previous budget.”

“Once operational, this wind capacity could supply power equivalent to 10% of 2023 electricity demand.”

Sarah Brown, Europe programme director at Ember, agreed the new budget is a “great start towards achieving the offshore wind targets, although future auctions will have to deliver strong results to achieve the scale of capacity additions needed.”

What about floating offshore wind?

Energy secretary Ed Miliband has said Labour is targeting 5GW of floating offshore wind in the water by 2030, up from a measly 80MW today.

The budget for emerging technologies including floating offshore wind has now been more than doubled by Labour, up from £105m to £270m.

The additional £165m is “significant,” said Bertels, as this could “pave the way for delivery of several hundred megawatts of floating offshore wind capacity, dwarfing the UK’s current operational capacity of 80MW.”

That could potentially have the effect of “kickstarting the commercial scale-up of the industry.”

Lloyd-Williams at Westwood said the picture for floating is mixed as it “remains in competition with other emerging technologies,” such as tidal power.

It is "possible" that Green Volt could land a contract under the new budget, said Bertels, but that will "depend on the clearing price achieved and whether the project seeks a CfD on its full 560MW capacity, or dedicates some proportion to supplying oil and gas offtakers."