LONDON – A UK government auction for offshore wind failed to attract any bids, the latest sign of trouble in an industry that is crucial to meeting net-zero goals.
Offshore wind developers had repeatedly warned the government that they were unlikely to bid in this year’s auction round while they are facing rising financing and supply chain costs. The government-set electricity prices in the auction were always likely to be too low to make building projects worth it.
The results will raise questions for Prime Minister Rishi Sunak as he meets with other Group of 20 leaders this weekend in New Delhi. G-20 host Narendra Modi wants the group to agree on a target to boost renewable energy capacity by 2030. Mr Sunak is also facing growing criticism from environmental groups back home.
The UK aims to have 50 gigawatts of offshore wind power by 2030, but is expected to fall short of the goal by nearly a third, according to BloombergNEF.
“The news this morning is an energy security disaster,” said Mr Ed Miliband, Labour’s Shadow Energy Security and Net-Zero Secretary. Analysts at the Energy and Climate Intelligence Unit said that using gas instead of the offshore wind which could have won in this auction would cost consumers £1 billion (S$1.7 billion) per year.
While 5 gigawatts of offshore wind capacity had pre-qualified to bid in the auction round, developers deemed prices unattractive, even after the government boosted the budget available for contracts.
For renewables overall, only 3.7 gigawatts of fresh projects cleared in the government’s fifth auction round, marking a huge drop from the almost 11 gigawatts that were given contracts in 2022’s allocation. Most of that capacity went to solar power and onshore wind.
Under the UK’s clean energy auctions, companies compete for contracts based on how cheaply they can build a project to supply power. The government sets a baseline price, which no one can bid above. Companies have to pay anything in excess of that level back to the Treasury, while they get compensated the difference if electricity prices fall below. Investors said the price floor set in 2023 was untenable, as it failed to take account of inflation.
“Industry has warned that rising costs should have been properly priced into this auction. If the UK isn’t offering prices that allow investors to make a return, they will simply invest elsewhere,” said Mr Dan McGrail, chief executive of the trade association RenewableUK.
For years, offshore wind has been the country’s most successful alternative source of energy to fossil fuels. In 2022, the technology won the bulk of new capacity, almost 7 gigawatts, at record-low prices. But that success is fading as projects struggle with cost pressures.
In July, Vattenfall AB, a winner of 2022’s auction, shelved a 1.4-gigawatt UK wind farm, which would have provided power for 1.5 million UK homes, saying the development is no longer viable after costs for the technology soared 40 per cent.
Orsted AS CEO Mads Nipper has also warned that the company may not be able to reach financial close on its Hornsea-3 project, which won a contract in 2022.
The government defended the lack of offshore wind in this year’s allocation, saying it was in line with similar results in countries including Germany and Spain.
“Offshore wind is central to our ambitions to decarbonise our electricity supply and our ambition to build 50 gigawatts of offshore wind capacity by 2030, including up to 5 gigawatts of floating wind, remains firm,” said Energy and Climate Change Minister Graham Stuart. BLOOMBERG
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