Experts hail offshore wind victory in CfD auction

Low strike price is “hard evidence” technology is “getting close to maturity”.

Analysts have hailed today’s Contracts for Difference (CfD) auction results as a proof renewables will “fundamentally change the way energy is generated in Great Britain”.

The government confirmed today the second auction round has seen the cost of offshore wind fall by more than half since the last auction in 2015, with prices clearing from just £58/MWh from 2022-23.

Three offshore wind farms – Triton Knoll, Hornsea Project 2 and Moray – will join eight other renewable generation schemes to deliver more than 3GW of power, at a total forecast cost of £176.2 million a year (in 2012 prices).

Before the auction results, there had been numerous predictions about the offshore wind price, but nothing as low as £58.

Speaking to Utility Week, Cornwall’s senior consultant, Tom Edwards, said the auction results are “hard evidence” that offshore wind “is getting close to maturity and will fundamentally change the way energy is generated in Great Britain”.

“We can only imagine what would happen if onshore wind and solar were given the same opportunity,” he added. “Could they out compete the more traditional base-load technologies as well?”

In total 61 per cent of the £290 million auction budget was allocated across four delivery years, peaking at £176 million in 2023-24.

“That’s part of the design of the allocation mechanism,” explained Edwards. “Offshore windfarms are very big and you can only get two or three of them into the auction before you hit that budget cap, and because the government specifically capped fuel technologies at 150MW, you could not fill out the rest of the budget with smaller people who also wanted money. 

“There’s clearly appetite out there for more of these contracts and I would not be surprised if there was not another one of these for offshore wind,” predicted Edwards.

Arup’s head of economics, Filippo Gaddo, told Utility Week its analysis suggests that growth in turbine size from 3MW to up to 10MW played an important factor in driving down CAPEX costs and securing the low strike price.

“We also think that what may differentiate the winning projects are possible assumptions on power prices and ancillary revenues from other grid services,” said Gaddo.

“The government will be under pressure now to plan further auctions and ensure that the £730 million earmarked for auctions of less established technologies during the last parliament will be committed by 2020 as originally planned – maybe something to look forward in the forthcoming clean growth plan?”

While Giles Hundleby, a director at BVG Associates said the low strike prices will also allow more capacity to be funded – nearly 3.2GW when the best many were expecting was just over 2GW.

“Before we all get too carried away, though, the levellised costs of energy (LCOEs) implied by the CfDs awarded are on the same trend with those we have seen over the last year at Borssele 3 and 4 in the Netherlands and Kriegers Flak in Denmark,” added Hundelby.

“Most remarkable is probably that Moray Firth has been able to be as competitive as Hornsea 2. Presumably both of these are planning to exploit their extra time to use the same future large turbines as have been mooted for Borssele 3 and 4 and Kriegers Flak.”

The leader of the Liberal Democrats, Vince Cable said the falling price for offshore wind “is extremely encouraging and shows the need for a radical reappraisal by government of the UK’s energy provision”.

While the chief executive of RenewableUK, Maf Smith said it is also important that other renewable technologies, including wave energy and tidal energy projects “have a route to market, so different mechanisms are needed to ensure these cutting-edge technologies can develop”.