The UK has further cemented its place as the leading country for economical offshore wind projects thanks to record low strike prices at the Contracts for Difference Round 3 auction.
The prices achieved demonstrate the massive cost reductions that have been achieved in UK offshore wind over the last decade.
Offshore wind won 5.5 GW of the 6 GW of new renewable energy capacity awarded. The average winning price for offshore wind was £40.63/MWh (€46.16/MWh) including grid connection, the lowest prices yet for offshore wind in the UK. The winning bids include 3.6 GW of wind farms at Dogger Bank (by Equinor and SSE) and Innogy’s 1.4 GW Sofia wind farm. Prices for offshore wind in the last UK auction round in 2017 were £57.50/MWh. In 2015 they were £117.14/MWh.
The auction is based on a 2-sided Contract for Difference (CfD) model where the state guarantees wind farms a strike price for their electricity for 15 years. If the wholesale power price is below the strike price the state pays the wind farm the difference. When it’s above, then the wind farm pays the difference to the state.
We are now in a market where developers are no longer receiving subsidy payments from government, but they are given revenue certainty. The CfD regime has shown to provide vital long-term revenue certainty for developers, which is essential for a project’s bankability. Specifically, CfDs for offshore wind will help ensure the 30GW Sector Deal targets by 2030 can be realised.
A combination of technological innovation, investment in the supply chain, and healthy competition in the market have all played an important role. These factors are set to continue to influence the market, yielding further cost reductions in the UK and Europe.
In 2011, the UK government set a target of £100/MWh by 2020. Today’s strike prices are proof that the industry has managed to deliver cost reductions ahead of schedule, at over half the amount the UK government thought possible just a decade ago. With this increased renewable energy capacity there must also be a collective focus on the technological developments required to support grid integration.
This is an important milestone, which will help move the UK offshore wind sector further towards the Committee on Climate Change’s recommendation of 75GW energy from wind by 2050.
In addition to offshore wind, biomass, wave, tidal energy and energy from waste projects, for the first time Remote Island Wind projects (onshore wind on Scottish islands) were allowed to compete in the auction.
This is the third CfD auction, with the first taking place in 2015 securing nearly 1.2GW of offshore wind capacity at prices between £119-114/MWh and the second securing 3.2GW at £74.50-57.50.
The results of the auction have been welcomed by Renewable UK, The Carbon Trust and WindEurope. These projects will begin generating between 2023 and 2025.
By Jake Frith