New U.K. government bets big on offshore wind

Ed Milliband: “Last year’s CfD auction round was a catastrophe ... this year’s is getting its biggest budget yet.”

The U.K. has a new government — and it’s betting big on offshore wind. Secretary of State for Energy Security and Net Zero Ed Miliband MP today announced that the U.K.’s next renewable energy auction will have a budget of over £1.5 billion (about $1.93 billion), with the biggest boost being £1.1 billion for offshore wind. The budget is more than 50% over last year’s Contracts for Difference (CfD) auction that attracted no bids — causing international hand wringing over the future for offshore wind.

Around the world, different governments and agencies have different ways of paying for renewable energy … but the lesson of the U.K. auction flop was taken on board in a lot of places.

“Last year’s auction round was a catastrophe, with zero offshore wind secured, and delaying our move away from expensive fossil fuels to energy independence,” said Secretary Milliband. “Instead, we are backing industry to build in Britain, with this year’s auction getting its biggest budget yet. This will restore the U.K. as a global leader for green technologies and deliver the infrastructure we need to boost our energy independence, protect billpayers, and become a clean energy superpower.

The Contracts for Difference scheme provides developers with initial subsidies for clean electricity projects across Britain. These subsidies are paid back when wholesale electricity prices are higher than the agreed CfD price. This was seen over Winter 2022/2023.

The system gives developers greater certainty to invest, knowing that when electricity prices fluctuate, they will always get a set price for their projects.

Developers can bid for more funding and bring forward more renewable energy projects, which the government says will deliver its 2030 clean power target while supporting local economies’ growth across the country.

Following the increase, the Allocation Round 6 (AR6) budget includes:

• £1.1 billion for offshore wind, an uplift of £300 million
• £185 million for established technologies such as onshore wind and solar, an uplift of £65 million
• £270 million for emerging technologies such as floating offshore wind and tidal, an uplift of £165 million (£1 was worth $1.28 at this morning’s exchange rate).

The increase means the AR6 budget is 7 times higher than that of Allocation Round 5 (AR5).

Now the budget has been set, the auction will take place in August with successful projects to be announced in September 2024.

CfDs work by guaranteeing a set price for electricity – known as a strike price – that generators receive per unit of power output. Interestingly, the maximum strike price set for offshore wind in the upcoming auction is £73/MWh while that for floating offshore wind is £176/MWh.