The UK has broken years of offshore wind auction failures with a record 8.4 gigawatt (GW) of projects at an unexpectedly reasonable price.
It’s been a rough two years for offshore wind tenders in Europe, and the ripples have been felt in Australia where Victoria is still trying to get its first auction off the ground.
The UK’s seventh round however may lay some fears to rest, awarding a record capacity at prices industry say are reasonable – but also competitive with the cost of building new fossil fuel generation.
Eight new projects won contracts for difference in the auction, with the fixed-based projects in England and Wales coming in at an average per megawatt hour (MWh) strike price of £90.91 ($A182.91/MWh), and at £89.50/MWh in Scotland.
The small portion of floating projects, just 192.5 megawatts (MW) of capacity, came in at £216.50/MWh.
The fixed base averages are still much higher than the stunningly low prices set in 2022 and higher than those in the sixth round, but industry experts have been pleasantly surprised.
The lower prices, when factoring in inflationary pressures, are still cheaper than building new fossil gas plants, says Frankie Mayo, a senior analyst at think tank Ember.
“Many more projects may have bid in, but this seems a reasonable balance between cost, generation need and supporting the industries supply chains. Now let’s see these being built,” he said on LinkedIn.
“These projects will in fact contribute to downward pressure on wholesale power prices, we know that hours without high wind generation see average wholesale power prices well above this £91 figure.”
Competitiveness with fossil fuels was a real issue highlighted last year, when a Norwegian government study said the world’s biggest offshore wine project, Dogger Bank, was likely to be unprofitable for shareholder Equinor.
It was measuring the investment against an internal rate of return based on oil price volatility.
The 1.5GW Dogger Bank South West and 1.5 GW Dogger Bank South East projects were the biggest winners from this round, however, locking in government backing.
RWE expects to commission the former in 2031 and the latter in 2032.
Other winners were the first Scottish project to win a CfD since 2022, the 1.28 GW Berwick Bank at £89.49/MWh, and 100 megawatt (MW) floating project Pentland which is also in Scotland.
The Awel y Môr project is the first Welsh project to win CfD backing in more than a decade, for a potential 1.1 GW wind capacity.
Chris Stark, the head of the UK’s Mission Control for Clean Power who led the design of the latest auction, says there were a number of design changes this time which helped attract bidders,
“Increased competition in the auction, with projects competing before they reach full planning consent, a longer CfD contract to spread costs to give a better consumer outcome, [and] important new auction rules that have allowed Ministers to ‘see’ the offshore wind bid stack and increase the starting budget, because we could see value for money for consumers,” he wrote on LinkedIn.
“This is the result of 18 months of focused effort. We can now say with much greater confidence that offshore wind will form the backbone of the British energy system from the 2030s.”
Shocking two years
The news that the UK has landed a successful auction is welcome after a shocking two years generally.
But now the question will be whether the developers follow through on their plans.
Developers have been dumping North Sea projects as the cost of building surged past the planned returns.
Last year, Danish giant Ørsted shelved plans for the 2.4 GW Hornsea 4 project proposed for waters off the coast of Yorkshire, just months after winning UK government support.
In August, Germany got no bids at all for its auction, the first time that has happened and which the industry association put down to increased project and capital costs as a result of geopolitical tensions and supply chain bottlenecks, and increasingly difficult-to-predict price and volume risks in the electricity market.
Two months later the Netherlands revealed it received no bids for its latest site the Nederwiek 1-A, with high construction costs making the zero-subsidy model untenable for developers.
In 2024, a 6-10 GW auction in Denmark received no bids.
In Australia, Victoria is yet to reveal details for its own offshore wind tender after months of delays, as it struggles to pin down the federal government on financing support.
