Offshore Wind Developers Take a Pass on UK’s Fifth CfD Round as Maximum Bid Price Was Too Low

September 8, 2023, by Adrijana Buljan

The UK government has awarded 3.7 GW of renewable energy projects with Contracts for Difference (CfDs) in its fifth allocation round. Among the 95 new projects that secured CfDs are onshore wind, solar and tidal energy developments – and not a single megawatt of offshore wind.

According to the government, the global rise in inflation and the impact on supply chains presented challenges for projects participating in this round. The government also noted that similar results have been seen in countries such as Germany and Spain.

The industry does not disagree, however, multiple players have voiced their disappointment that the government had not taken these pressures into account for this round and emphasised that the UK’s goal of having 50 GW of offshore wind and 5 GW of floating wind could now be jeopardised.

Last year, the UK awarded CfDs to 7 GW of offshore wind projects alone.

“Despite the industry’s clear warnings, the UK Government has not taken inflationary costs and supply chain squeeze into account in this latest auction, focusing solely on competition through cost reduction. This is a huge wake-up call that if we want to deliver on our targets in this decade of delivery we need to see considerable reforms to the CfD auction design and industrial strategy to support its development and deployment”, said RenewableUK Cymru’s Director, Jess Hooper.

According to RenewableUK, up to 5 GW of offshore wind projects were eligible to compete this year, however, developers did not bid as the maximum price they could bid was set at GBP 44/MWh (around EUR 51.32/MWh), which was too low for the developers who are facing the consequences of inflation and supply chain challenges. The maximum bid price for floating wind was GBP 114/MWh (around EUR 132.77/MWh).

“These results should set alarm bells ringing in Government, as the UK’s energy security and net zero goals can only be met if we have offshore wind as the backbone of our future energy system. We need the Government to show that the UK is open for business“, RenewableUK CEO Dan McGrail said. “The failure to secure any new offshore wind is a major blow for consumers that could, and should, have been averted”.

The industry has voiced concerns about the fifth allocation round (AR5) earlier this year, too, when the government announced the AR5 budget and parameters, for which RenewableUK said were “too low and too tight.”

Following the results, RenewableUK’s Executive Director for Policy and Engagement, Ana Musat, said: “Offshore wind remains the UK’s cheapest option for large-scale power, so slowing deployment will cost more and leave consumers exposed to volatile global gas markets for longer”.

According to the UK’s renewable energy organisation, the eligible projects that could have added up to 5 GW of offshore wind could have powered nearly 8 million homes and saved consumers GBP 2 billion a year compared to the cost of electricity from gas.

“We urgently need Government to provide reassurance that next year’s auction round will offer investable parameters, and that in the longer term a joined-up strategy for maximising the potential of the offshore wind sector is developed. As part of that, the industry needs to see credible plans to evolve the CfD to maximise deployment of our cheapest forms of electricity generation, a commitment to develop and fund supply chain growth and an internationally competitive fiscal regime which attracts capital into the UK”, RenewableUK’s Ana Musat said.

In a press release announcing the fifth CfD round’s results, the government said it reviews its approach ahead of each round and that now project developers, including those from the offshore wind industry, will have more frequent opportunities to participate with the introduction of annual auctions.

“This will also allow the government to respond more quickly to ensure the scheme continues to support the sector, maintain investment and continue its success”, the government stated.

“The government is already gearing up for the sixth round of auctions in 2024 – which will be the second annual auction – and looks forward to future participation of offshore and floating offshore wind”, the press release reads.