Industry body RenewableUK is calling on the UK government to take urgent action to rebuild investor confidence in the market following the Contracts for Difference (CfD) Allocation Round 5 failing to award any offshore wind.
RenewableUK is calling for urgent action from London to fix the investment framework through a package of reforms to the CfD, support for supply chains and fiscal measures to attract clean energy investment into the UK in the face of global competition.
The results of the 5th round of Contracts for Difference (CfD), published this morning, show 3.7GW of new renewables capacity was successful overall.
This is the lowest level since 2017 and just over a third of the 10.8GW in last year’s auction.
Up to 5GW of offshore wind was eligible to compete but no developers submitted bids.
Industry has previously warned prices needed to rise to reflect the impacts of the invasion of Ukraine, inflation in key commodities like steel, and increased financing costs from spiralling interest rates, RenewableUK said.
However, offshore wind developers saw the maximum price they could bid in this year’s auction cut by £2 to £44 per MWh it added.
The auction secured 1.9GW of solar at £47 per megawatt hour and 1.5GW of onshore wind capacity at £52.29/MWh, as well as 53MW of tidal power at £198/MWh.
The new projects will come online from 2025 onwards.
So far, only 27GW has been secured of the government’s 50GW offshore wind target for 2030 and future auctions will now have to support 4.5GW-5.8GW a year to get back on target, the representative body said.
National Grid forecasts – regardless of progress on other renewables and nuclear – we will need at least 73GW of offshore wind by 2035 to decarbonise the grid.
RenewableUK chief executive Dan McGrail (pictured) said: “Industry has warned that rising costs should have been properly priced into this auction.
“If the UK isn’t offering prices that allow investors to make a return, they will simply invest elsewhere.
“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.
“The failure to secure any new offshore wind is a major blow for consumers that could, and should, have been averted.
“Building wind farms means we stabilise the cost of energy for the long-term and reduce our dependency on fossil fuels, prices of which can be manipulated by dictators and despots.
“It’s not too late to get back on track, but without urgent changes, we risk pricing ourselves out of the global race for clean energy investment.
“Renewables don’t only enable us to fight climate change, they also help to drive economic growth, creating jobs and supporting supply chains across the UK.
“This result for offshore wind means putting economic growth on hold, with over £10bn in investment and thousands of jobs delayed.”
Scottish Renewables chief executive Claire Mack said the industry has repeatedly warned of the cost pressures and increased challenges facing developers, but the UK government failed to heed these warnings and is now seeing the effect of that inaction.
She added: “Today’s results are a major blow and should serve as an indication that urgent reform is needed. Every megawatt of renewable energy which is not built right now prolongs our dependence on generation using expensive imported gas, which costs consumers money.
“It’s also bad for Scotland’s energy supply chain, which is trying to transition from oil and gas to renewables and desperately needs a steady stream of projects to make their own investments in skilling up and new technology.”
The Offshore Wind Industry Council said, while the auction results are disappointing, the sector’s continued focus is working closely with the government to reform the auction process so far more capacity can be secured next year and beyond.
Co-chair Richard Sanford said: “It is clear that this year’s auction represents a missed opportunity to strengthen Britain’s energy security and provide low-cost power for consumers.
“If all the offshore wind projects eligible to bid into this auction had done so, we could have powered the equivalent of more than five million British homes a year.
“So, lessons must be learned to ensure that the parameters of the auction are set correctly in the future.
“The landmark report published earlier this year by the government’s offshore wind champion Tim Pick shows how the industry can grow successfully in the years ahead.”
Greenpeace branded the failure to award any offshore wind contracts as a disaster.
Its UK policy director Doug Parr said: “This monumental failure is 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. It leaves the UK more dependent on expensive, imported fossil gas.
“Offshore wind is one of the cheapest and cleanest forms of power there is, but in an effort to save consumers pennies on their energy bills, the government is costing them pounds. We need urgent reforms to the way these contracts are awarded and smart changes in government policy to unlock private investment and remove planning bottlenecks.
“If they don’t, the new renewables – which are essential for lowering bills, increasing energy security and slashing emissions – simply won’t get built.”
Energy UK’s chief executive Emma Pinchbeck said the auction round has put the London’s 2030 targets in jeopardy. She said: As that target shows, offshore wind should be making a huge contribution to ensuring cheaper, cleaner energy for our country and bolstering our energy security by reducing our reliance on costly fossil fuels.
“While the support for solar and onshore is welcome, it doesn’t compensate for the lack of offshore wind. “Failing to invest properly risks blowing a hole in our ambitions for providing cheaper, domestic energy and puts the UK in danger of going from leader to loser in offshore wind.
“Customers are still facing historically high bills because of the volatile cost of fossil fuels and independent analysis suggests the lack of new offshore wind projects could end up costing billpayers as much as £1bn a year. “Despite warnings that costs for offshore developers had increased by as much as 40% since the last auction, amidst growing global competition for investment, the Government pressed ahead with terms that were actually inferior to last year’s.
“CfDs have been a huge factor behind the expansion of new clean energy sources while driving down costs.
“However they have done that by providing the right level of certainty to developers making huge long-term investment commitments while ensuring their returns are linked to energy prices – and that’s what’s been missing here.”
The Global Wind Energy Council accused the UK Government of failing to listen to industry warnings.
GWEC chief executive Ben Backwell said: “The UK government didn’t listen to repeated industry warnings about inflationary pressures and increased capital costs so it is no surprise that the auction has been a failure.
“This is a huge missed opportunity, particularly as offshore wind remains much cheaper than gas.
“The UK is competing with other markets around the world for clean energy investment – just look at how many other countries around the world are building their offshore wind sectors.
“The UK needs policies which will attract investment and jobs, not race to bottom pricing that makes investment impossible.
“We hope the UK government learns a lesson from this: wind energy is cheap, but it’s not free, and investors can’t be taken for granted.
“We are seeing these challenges around the world and governments will be watching today’s news closely.
“Offshore wind is set to play a huge role in the energy transition, but it’s vitally important that governments work with industry and investors to get the conditions right.”