It was a “record-setting auction” and “a significant step forward in our mission for clean power for 2030”, trumpeted the energy secretary, Ed Miliband, enjoying the contrast with last year’s auction flop under the Tories in which precisely zero bids were received to build offshore windfarms.
Miliband was claiming credit when it wasn’t entirely due, of course, because this year’s competition was designed well before the general election. Some version of success was guaranteed from the moment the last government said it was prepared to pay up to £73 a megawatt hour (in 2012 prices, confusingly) for offshore wind, a mighty leap from the £44 level that produced no takers in 2023. At the higher level of incentive, developers were bound to come out to play again.
But Miliband is right about the return of a general feelgood vibe around renewables, which may owe something to his vote of confidence in the contracts-for-difference (CfD) regime as an effective price-discovery mechanism for renewables. The winning bids for offshore wind settled at £54/MWh and £58/MWh (again in 2012 numbers), better than expected.
Even when one converts the numbers to today’s prices to get £75/MWh and £82/MWh, that equates to a shade under the current wholesale electricity price of £84/MWh. The lovely low prices of 2022 aren’t coming back, but offshore wind remains a credible workhorse of a renewables-heavy power system. Last year’s inflation shock in supply chains seems to be subsiding.
But here’s the very large qualification: Miliband’s target of having 60 gigawatts of installed offshore wind capacity by 2030 is still a long way from being credible.
Just do the back-of-the-envelope arithmetic: there is about 15 gigawatts of capacity operating today; add the projects commissioned in Tuesday’s auction result plus those already under construction and you still only get to a grand total of about 27 gigawatts. Getting to 60 gigawatts by 2030 – all of it operational – looks a stretch and a half.
“More action is needed to stay on track with ambitious 2030 targets,” says the energy consultancy Aurora. You bet. The next two auctions would have to secure 28 gigawatts of capacity between them and next year’s budget for offshore wind would have to be doubled to £2.5bn, thinks LCP Delta.
One big constraining factor here is supply chains. The UK is not alone in pushing hard to add offshore capacity, and most of the kit is sourced in competitive international markets. It is welcome news that the Japanese company Sumitomo Electric is building a £350m subsea cable manufacturing plant on the Cromarty Firth, but few blades and turbines are produced domestically. It is not easy to accelerate meaningfully the pace of rollout of windfarms (and, critically, the rate at which they are connected to the grid).
The government knows that, of course, thus Miliband indicated that he is working on plans to expand the CfD system and “other energy policies” to get more renewables connected sooner. But, at this stage, that is merely a hint that contracts could be signed outside the existing renewables setup, whether via GB Energy or some other vehicle.
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In the absence of details, the consensus view in the renewables industry is roughly this: the offshore show is back in business, but 60 gigawatts by 2030 probably won’t happen.