LONDON – Britain will offer record support for new offshore wind farms in an upcoming auction after the process failed to attract bidders for the technology in 2023.
The government set a budget of just over £1 billion (S$1.7 billion) for renewable energy, with £800 million (S$1.4 billion) a year to support the next generation of offshore wind farms, according to a budget document published on March 6 that confirmed an earlier Bloomberg report.
The total is three times bigger than any previous support packages.
The record amount is the latest sign that governments realise they need to do more to support an industry they consider vital to combatting climate change.
Offshore wind developers, including Orsted, have struggled in recent years amid soaring interest rates and supply-chain snarls, resulting in cancelled British and US projects.
Britain has led the world in subsidising offshore wind to help the industry scale up and cut costs.
The nation plans to triple capacity by decade’s end to cut carbon emissions and increase energy security.
But the target has come up against rising costs that may contribute to higher bills for consumers.
Those expenses, plus the government’s expectation that power prices will fall in coming years, mean that as few as two projects may be successful in the upcoming contest, depending on their size.
How much capacity is secured at the upcoming auction will depend on how aggressively companies bid.
If the auction were to clear with a price of £60 per megawatt hour, the government would secure about four gigawatts (GW) of new offshore wind farms, according to consultancy Baringa.
That would be better than the last round, but still likely below what is necessary to put Britain on track to reach its 2030 target.
“The spring budget puts the government’s ambition of delivering 50 GW offshore wind by 2030 increasingly out of reach,” said Mr Ashutosh Padelkar, senior associate at Aurora Energy Research.
An increased auction budget is critical for major developers such as Orsted, Iberdrola and RWE that will be eligible to bid.
But it may be a highly competitive process, with more than 10 GW of projects eligible, according to industry group RenewableUK.
It is also possible the budget is increased before the auction opens, depending on how many projects qualify to bid.
The numbers are an estimate of the total annual support that wind farms eligible for Britain’s main subsidy mechanism, known as contracts for difference, will receive to allow them to sell power at guaranteed prices.
The auction in 2023 failed to lure bidders because the price to sell power offered by government was too low.
The contracts guarantee that recipients will be able to sell electricity at fixed prices during a 15-year period.
For the next auction, the maximum guaranteed price will be £73, compared with £44 in 2023, not accounting for inflation.
If the market price is below the contract price, then operators receive a top-up.
Under the reverse scenario, wind farms pay consumers back. BLOOMBERG
