The government has raised the price paid for energy generated by offshore wind farms by 66 per cent after the previous auction for new projects failed to attract any interest from the sector.
Contracts for Difference (CFD) auctions invite companies to bid to develop renewable energy projects in the UK and give them a guaranteed minimum price for the electricity they will generate. The system also means that if electricity prices in the future rise above that level, the companies pay the excess back to the treasury.
The last auction in September attracted no developers, with the industry saying that the government had set the price too low to make new projects worth pursuing.
Industry experts had warned that this might be the case after ministers refused to increase the maximum price, despite a 40 per cent rise in the cost of manufacturing and installing turbines.
The maximum strike price has now been increased by 66 per cent for offshore wind projects, from £44/MWh to £73/MWh, and by 52 per cent for floating offshore wind projects, from £116/MWh to £176/MWh, ahead of Allocation Round 6 (AR6) next year.
As well as today’s rise, the Department for Energy Security and Net Zero (DESNZ) said that offshore wind projects could get more money from 2025 if they reduce carbon emissions in their supply chains and demonstrate a “positive social impact on communities”.
The department hopes that the new price will boost interest from developers when applications for the next round of projects open in March.
The UK is already home to the world’s five largest operational offshore wind farm projects, but recent research found that up to 95,000 jobs in the sector could be at risk if the rate of investment does not increase significantly.
The government’s current target is to deliver up to 50GW of offshore wind by 2030, including up to 5GW of floating offshore wind.
Energy security minister Graham Stuart said: “Last year’s Contracts for Difference scheme saw more than 90 clean, homegrown energy projects, and today we have shown our ongoing commitment to retaining our global leadership in renewable energy.
“This critical update to the scheme’s design provides further clarity and confidence to the offshore wind sector and ensures the scheme remains competitive for renewable developers investing in new low-carbon technologies.”
RenewableUK’s chief executive Dan McGrail said: “Ensuring that the UK continues to unlock investment in renewables is critical to improve Britain’s energy security, drive economic growth, support thousands of new green jobs and enable us to continue to create a lowest cost electricity system for billpayers.
“With intense international competition for investment in renewables, we welcome the strong commitment to the sector shown by the government today, which demonstrates that the UK is intent on remaining a global leader in offshore wind, as well as innovative technologies such as floating wind and tidal stream.”
DESNZ said there is potential for the government to attract “a record level” of private investment in offshore wind projects next year, with at least 10 projects likely to be eligible that could provide enough energy to power 8.5 million homes.
