Orsted and WindEurope have both sounded the alarm over the high option fees paid by developers to secure new seabed rights at the Crown Estate’s Round 4 lease auction.
Orsted chief commercial officer Martin Neubert said the high fees could have been avoided had the round used a higher capacity cap.
“The UK leasing round 4 confirms that the UK is an attractive market and clearly demonstrates that appetite in this leasing round by far exceeded supply, resulting in unsustainably high front-end costs,” he said.
Neubert said the high fees risk driving unsustainable financial returns for developers and passing higher energy costs on to future energy consumers.
“To achieve the green transition at the lowest cost to society and in the fastest possible way, authorities must work with the sector to provide a predictable allocation of seabed at sufficient scale and sustainable price levels,” he added.
“The Crown Estate has undertaken to run regular leasing rounds to provide further seabed to the sector; it’s vital that the lessons are learned from Lease Round 4, and in future the leasing process takes a lifecycle approach to delivering value to society.”
WindEurope has said the UK got its latest offshore wind leasing round “badly wrong”, risking raising the costs of the sector.
The trade Group criticised the new bidding system that makes investors pay an upfront ‘option fee’ for the right to develop projects.
The option fee will be paid each year until companies get final planning permission, which they need to then bid in the Contracts for Difference (CfD) auction.
The planning process could take up to 10 years, WindEurope warned.
It also said the UK had not made enough capacity available for the expected high demand risking an auction with very high bids.
WindEurope chief executive Giles Dickson said: “The UK has done a great job so far on offshore wind. They’ve used the right auction design with CfDs.
“They‘re building up a strong supply chain creating thousands of jobs. They’ve reduced the costs for offshore wind hugely. They’ve set extremely ambitious targets for further build-out.
“But now with their new seabed leasing auction, they’re getting it badly wrong.
“Bidders shouldn’t have to pay large amounts for the right to develop offshore wind.
“And they’re making so little capacity available, that developers are having to pay huge amounts to win the auction.
“The developers will have to pass on these costs, so it’s a big new burden on consumers with no additional benefits.”
WindEurope said that the option fees announced in today’s Round 4 results total £879m (€1bn) a year for the nearly 8GW and represent a very significant sum for developers.
Dickson said: “The last time the UK allocated seabed rights 10 years ago, it was for four times more capacity than what they’re auctioning now.
“Yet now they’re trying to build far more offshore wind. And there are more companies who want to build it.
“Plus it’s unclear when the next auction will take place. So there’s a price frenzy in the bidding – that’ll just get passed on to energy bills.”
He added that no other country in Europe has this sort of model for seabed leasing.
Dickson said: “Demanding extra upfront payments only increases the costs of offshore wind.
“Just when offshore wind was becoming such a success story for the UK, they risk making it more expensive, increasing energy bills and undermining the expansion of the industry and all the jobs it should be creating, especially in the northeast of England.
“It’s bad for the economy and bad for the energy transition the UK is supposed to be championing.”