Blow to UK offshore wind projects as auction flops

No offshore wind projects win contracts for difference as developers say costs are too high

Wind turbines at Gwynt y Mor, off the coast of the UK. An auction for offshore wind projects has failed to lead to any contracts for difference. PA

The UK government's decarbonisation plans have been dealt a blow after an auction failed to deliver any new contracts for offshore wind projects.

Offshore wind projects are considered crucial to the government's renewable energy strategy, but none won a contract for difference (CFD). Solar and onshore initiatives received backing.

Industry bodies warned the auction for offshore CFDs would fail and some energy companies boycotted the process.

CFDs guarantee a minimum price for energy, but experts said the level was too low for companies to make their investments viable in the face of high inflation.

A price floor of £44 ($55) per megawatt hour that was set for the auction seems to to have put off potential wind farm developers, given that inflation over the past year has increased the cost of raw materials, particularly steel.

Industry insiders said the costs, including wage rises, had risen by about 40 per cent since last year's auction.

But the government stressed that the auction for other renewables was satisfactory.

"Significant numbers of solar power and onshore wind, and a record number of tidal energy schemes, have been awarded funding today," it said.

'Biggest disaster for clean energy in almost a decade'

But opposition figures focused on the offshore wind auction, with Labour shadow energy security and net zero secretary Ed Miliband saying "ministers were warned time and again that this would happen, but they did not listen".

"They simply don't understand how to deliver the green sprint, and [Prime Minister] Rishi Sunak's government is too weak and divided to deliver the clean power Britain needs," he said.

Greenpeace UK's policy director, Doug Parr, said the failure of the auction was "the biggest disaster for clean energy in almost a decade".

"Thanks to cost pressures and inept government policy, this auction round has completely flopped – denying bill payers access to cheap, clean energy and putting the UK's legally binding target of decarbonising power by 2035 in greater jeopardy," he said.

"It leaves the UK more dependent on expensive, imported fossil gas."

The Walney Extension offshore wind farm, off the coast of Blackpool, England. Reuters

Flexible system

Those involved in the offshore industry have said the CFD system needs to be revamped.

"This is a multibillion-pound lost opportunity to deliver low-cost energy for consumers and a wake-up call for government," said Keith Anderson, chief executive of ScottishPower.

"The CFD process is recognised globally as a linchpin of the UK's offshore success, but it also needs to flex to keep pace with the world around it.

"We all want the same thing, to get more secure, low-cost green offshore wind built in our waters.

"We need to get back on track and consider how we unlock the billions of investment in what is still one of the cheapest ways to generate power and meet the UK's long-term offshore wind ambitions for the future."

The failure of the offshore wind aspect of the auction means no new wind farms will be commissioned this year, leading to fears that UK household energy bills could be affected.

Producing energy from wind used to be expensive, but advances in technology and an increasing ability to build at scale mean the cost has dropped significantly.

Modern wind turbines now produce electricity much more cheaply than their gas equivalents, especially following the soaring price of gas following the outbreak of the Ukraine war.