A recent Government auction has received no new bids for offshore windfarms, although there were bids for onshore wind, solar and tidal projects. This is not good news for accelerating progress towards Net Zero targets and for lowering people’s energy bills which although falling, remain high.
Responding to the auction, which is part of the Contracts for Difference (CfD) scheme, Government reported a record number of clean energy projects being awarded in the latest process - 95 up from 93. However, they are on average smaller projects, and overall this is a third of what was bid for in the previous year – a drop from 11GW to 3.7 GW with the offshore wind component dropping out entirely. In the previous year it represented 7 of the 11GW bid for.
Inflation and supply chain factors have meant rising costs for offshore wind projects
So why has this happened? Global inflation and supply chain factors have undoubtedly led to rising project costs for offshore wind developers. Yet despite this the Government lowered its guaranteed price per megawatt hour (MWh) of electricity produced from £46 to £44. Industry warned in advance that this would result in no bids for offshore wind projects.
As a result, the UK looks increasingly unlikely to meet its target of 50 gigawatts (GW) of offshore wind capacity by 2030. Capacity currently stands at around 14 GW. We rapidly need to increase this capacity if the UK is to realise its Net Zero ambitions. Bringing more, ultimately lower cost wind into the energy system can help both heat people’s homes more cheaply and more sustainably and contribute to the development of green hydrogen, which could be used to store energy, as a fuel in vehicles and in sectors which are hard to abate such as the chemicals industry. It’s worth noting that the high gas price is currently driving the consumer price of electricity, so the sooner we can move away from this, including through the generation of increased levels of renewables the better for Net Zero and for household bills.
Net Zero requires policy commitment to enable and derisk long-term investment
The outcome of the latest CfD auction process has demonstrated that a long-term focus on enabling necessary investments is required to give offshore wind developers the certainty they need. Ultimately the UK Government has legally committed to transition to Net Zero by 2050. Thus, offshore wind, as with other aspects of the transition, needs to be underpinned by sustained commitments to realising a more sustainable future. This will be crucial in avoiding the environmental and economic damage that failure to take action on climate change could bring.