Five fixed-bottom offshore wind farms have secured a £37.35 per megawatt-hour clearing price in the UK’s fourth Contracts for Difference allocation round, a new low on previous auctions.
Industry observers had predicted the price would not fall below the £39.60/MWh recorded in the third round in 2019 amid global inflationary pressures and supply chain constraints.
But the 15-year price for the projects has defied expectations, coming in even lower than the £42.47/MWh recorded for onshore wind farms.
Orsted was the auction’s biggest offshore winner by capacity, locking in the strike price for all 2.8GW at its Hornsea 3 project 160km off the coast of Yorkshire in the North Sea.
However, Deputy Group CEO Martin Neubert said the Danish developer remains “fully committed to financial discipline”, adding that the strike price is “inflation-indexed” and that the contract comes with “a level of merchant flexibility”.
“We have already secured capacity with key suppliers for around two thirds of Hornsea 3’s capex. Also, we can unlock significant synergies by taking a global portfolio view in procurement and by utilizing Hornsea 3’s size and location adjacent to our existing UK East coast wind farms with close to 4 GW in operation,” he added.
Elsewhere, Vattenfall’s UK country manager Danielle Lane said the result is a “major step forward as we look to create a low cost, low carbon system”.
The Swedish energy company also secured a strike price for all of the 1.4GW capacity at its Norfolk Boreas offshore wind project, the first of two projects alongside Vanguard destined to make up its Norfolk Zone in the coming years.
Construction on Boreas is set to start next year, subject to a final investment decision.
Rob Anderson, Project Director of Vattenfall’s Norfolk Zone, said: “We’re ready to go to take the project into the next stage. When we press the button, everything will come into place very quickly both for the investment we’re planning in the region and the contractors supporting the project, many of whom will be local.”
SSE Renewables and TotalEnergie’s 500MW Seagreen 1A extension was missing from the list of eligible offshore wind farms that secured CfDs in this year’s round.
SSE previously secured a partial CfD covering 454MW of its 1.1GW capacity for Seagreen 1 in 2019.
Ocean Winds and Ignitis Group’s 860MW Moray West wind farm, which missed out on a contract in 2019, was this year the only project not to secure a CfD for all its capacity.
It now has a CfD covering 294MW of output and already has a PPA lined up for around 350MW of the power it will produce.
Moray West Project Director Adam Morrison said without the support of internal and external stakeholders Ocean Winds would not have been so successful in building a “robust commercial project that underpins this successful bid”.
“Securing the recently announced large scale corporate PPA enabled the project to build a contracted revenue stack that reduced risks around the CfD process,” he added.
ESB and Red Rock Power’s 1.1GW Inch Cape, another project that missed out on a CfD three years ago, has now secured a £37.35/MWh for all of its capacity.
Adam Ezzamel, Inch Cape project director, said: “This is an important milestone for the project, and testament to the great work of team which has completely re-engineered the wind farm over the last two years. Their work has resulted in a project with significantly greater output and a lower cost of energy, ensuring that we were able to submit a successful bid to the auction.
“Our focus now moves to the contracting of key work packages and progressing towards a final investment decision by the middle of next year.”
And ScottishPower Renewables’ East Anglia 3 also took home a CfD for all 1.4GW of its capacity.
Inch Cape, East Anglia 3 and Norfolk Boreas will each be built in three phases and lock in their CfD contracts across delivery years spanning 2026/27 to 2028/29.
The £37.35/MWh clearing price for the projects compares to an administrative strike price of £46/MWh for the technology, meaning a maximum saving to the government of 19%.
Commenting on the CfD results for offshore wind, North Star CEO Matthew Gordon said: “As the UK’s largest offshore infrastructure support vessel operator and a local employer in Lowestoft, today’s CfD announcement is a great endorsement for the future of offshore wind in this country and for the opportunities it presents for businesses like ours and the next generation of seafarers.”