Next two CfD auctions must deliver 21GW of offshore wind

The next two Contracts for Difference (CfD) auctions must secure 21GW of offshore wind if the UK is to meet its decarbonisation targets.

Analysis by Energy UK warns that failing to deliver a combined 21GW of offshore wind in AR6 and AR7 means there will be a “serious risk that the government will be unable to achieve its target of 50GW of offshore wind by 2030, or its broader goal of a decarbonised power sector by 2035”.

It adds that given the resulting demands on supply chain, workers and other resources, this extra 21GW will need to be split across the next two annual rounds.

The analysis adds that the previous two auctions (AR4 and AR5) represented a “major setback” for the UK’s decarbonisation goal.

While AR5 failed to attract any offshore wind bids due to the low strike price set by government, the AR4 process in 2022 resulted in the collapse of a major 1.4GW offshore wind project, due to rising capital costs and supply chain price inflation.

Energy UK deputy director Adam Berman said: “Offshore wind plays a vital role in the government’s clean energy ambitions as a homegrown source of power that will bring down bills, lower emissions, and bolster our energy security.

“Getting the auction parameters wrong yet again risks spurning these benefits as well as missing our own targets. As we saw last year with the failure to procure even a single offshore wind project, getting these wrong can result in an underpowered auction. This is the very definition of a false economy and has left us playing catch-up over the next two rounds.

“Delivering an ambitious renewables programme in line with the government’s targets means being realistic about the economic and market conditions that potential investors are facing. The size of the prize is huge – re-establishing the UK as a leader in offshore wind and sending a strong signal in the face of growing international competition for such investment.”

As reported by Utility Week earlier this month, as much as 12.2GW worth of offshore wind projects could bid in the next auction.

The government previously announced a 66% increase in the offshore wind administrative strike price cap for the next CfD auction.

The administrative strike price – the maximum amount generators will be paid per megawatt hour (MWh) – has increased for the next auction round from £44 to £73 (2012 prices). It follows a disappointing auction round last year, which attracted no bids from offshore wind developers.

While the increased strike price was widely welcomed, the budget – which is due to be announced next month – will ultimately determine how many projects bid.

The budget will be set on 13 March, according to the government’s indicative AR6 timeline.