Business

UK offshore wind auction fails to attract investors in blow to net zero plans

Developers had warned that support on offer was too low to offset their rising costs

No new offshore wind farms have been commissioned in a key auction, dealing a blow to the UK Government's hopes of decarbonising the UK's electricity production. Photograph: Ben Birchall/PA Wire

Fri Sep 8 2023 - 12:57

The UK’s plans to develop cleaner energy have suffered a big blow after the government failed to attract offshore wind developers to its latest round of contracts for new projects.

No offshore wind projects won contracts in this year’s annual auction for subsidies, according to results published on Friday, after developers had warned that the government was not offering enough support to offset their rising costs.

It is a significant setback to the government’s plans to more than triple offshore wind capacity to 50 gigawatts by 2030 to help meet its legally binding target of net zero carbon emissions by 2050.

Keith Anderson, chief executive of offshore wind developer Scottish Power, said the “economics [for the round] simply did not stack up” and the results were a “wake-up call for the government”.

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He added: “We need to get back on track and consider how we unlock the billions of investment in what is still one of the cheapest ways to generate power and meet the UK’s long-term offshore wind ambitions for the future.”

Ed Miliband, Labour’s shadow climate secretary, said the results were an “energy security disaster” and accused the Conservatives of “trash[ing] the industry that was meant to be the crown jewels of the British energy system”.

Renewable energy projects in the UK are supported by the so-called contracts for difference system, in which the government agrees to guarantee developers a fixed price for the electricity they sell from the projects they are developing.

But developers warned that the maximum price on offer in this year’s round for those contracts was not enough to get offshore wind projects off the ground. The sector has been struggling with rising costs of labour and turbines, and high interest rates.

In July, Swedish developer Vattenfall halted work on its Norfolk Boreas project off the Norfolk coast, saying the price it agreed with the government last year was too low to offset costs which had risen as much as 40 per cent.

RenewableUK, the industry trade group, said the government needed to take “urgent action” to “rebuild investor confidence in the UK market”.

It said offshore wind projects eligible for this year’s round could have “powered nearly 8 million homes a year and saved consumers £2 billion (€2.3 billion) a year compared to the cost of electricity from gas”.

Dan McGrail, chief executive of RenewableUK, said: “These results should set alarm bells ringing in government, as the UK’s energy security and net zero goals can only be met if we have offshore wind as the backbone of our future energy system.”

Offshore wind has until now been a success story in Britain, the world’s second-largest offshore wind market after China, supplying about 11 per cent of the UK’s electricity in 2021.

The government highlighted the contracts awarded in the auction for solar and onshore wind projects, as well as geothermal projects for the first time, saying the 95 contracts were a “record number”.

However, RenewableUK noted that the 3.7GW of total capacity allotted was the “lowest level since 2017″ and just over one-third of the capacity awarded last year.

Graham Stuart, energy and climate change minister, said: “This year’s record-breaking round builds on years of renewables growth under this government.

“Offshore wind is central to our ambitions to decarbonise our electricity supply ... we will work with industry to make sure we retain our global leadership in this vital technology.” – Copyright The Financial Times Limited 2023

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