UK renewables: Offshore wind dominates the latest CfD auction

And breathe. You could almost hear the collective exhale from the UK renewables industry as the fourth allocation round (AR4) for contracts for difference for renewables (CfDs) was announced on 7 July, amidst political turmoil nationally.

However, whilst the news-cycle was focused on number 10 Downing Street, a total of 93 projects, comprising almost 11 GW of renewable generating capacity were awarded government support at record low prices. With an estimated actual monetary budget of £295 million across the three auction pots, this represents an important boost for the transformation of the UK’s energy mix.

As in any competitive tender process, there were winners and losers. Full details of the results are available here. An overview of successful technologies is provided in the table below.

Successful bidders will now be offered a CfD by the Low Carbon Contracts Company (LCCC), the counterparty to the CfD contracts for signature and return within 10 working days.

AR4 can be seen as an endorsement of the UK’s renewables industry as a whole, and paves the way for delivery of a variety of important technologies for the UK’s energy transition, including significant amounts of onshore wind and solar. The volume of onshore wind successful in the round is perhaps somewhat of a surprise, given the fierce competition that the technology faced from solar projects. A number of technologies were not successful: projects using advanced conversion technology, anaerobic digestion, dedicated biomass with CHP, geothermal, hydro, landfill gas, sewage gas and wave technologies were not offered contracts.

Over 7 GW of new offshore wind

However, it is the offshore wind results that really stand out. Bottom-fixed offshore wind emerged as the cheapest technology in AR4, cheaper even than onshore wind. At these prices, given power forward curves, these projects are likely to pay back to the consumer, at least in the early years of the CfD term. A summary of all successful offshore wind projects is shown below.

With no capacity cap for bottom-fixed offshore wind and a generous pot 3 budget of £210 million (in 2012 prices), AR4 was widely expected to be dominated by bottom-fixed offshore wind. The round in fact delivered just under 7 GW of new bottom-fixed offshore wind capacity. Interestingly, the capacity of the award to the Moray West project is lower than the total project size. Having announced in June that Siemens Gamesa was the preferred turbine supplier for an order totalling 882 MWs, the project is reported to be using a hybrid revenue support strategy, with part of its total output supported under a CfD and the remaining portion seeking alternative routes to market, including with a corporate offtaker.

These projects will now focus on finalising their financing and project contracts with a view to reaching their milestone delivery date within 18 months of the signing date. Projects will need to commission by the end of their target commissioning window in their delivery year in order to fulfil their operational conditions precedent and receive their strike price for the full 15 year contract term. But with demand for offshore wind increasing globally, coupled with inflationary pressures and supply chain bottle-necks, negotiations with OEMs and other contractors may not be straightforward. Developers will however be keen not to reopen commercial terms which formed the basis for their bid.

Notably, a 32 MW floating offshore wind project was also successful in AR4. Following the publication of the British Energy Security Strategy, the UK is now aiming for 5 GW of floating offshore wind by 2030. With only two projects totalling 80 MW currently operational in the UK, significant scale up is needed. Floating offshore wind competed in a different auction to bottom-fixed offshore wind projects in AR4, in the less established technology auction (known as the pot 2 auction). Although small as compared with the successful bottom-fixed projects, with significant volumes of floating offshore wind planned in Scotland and likely to be available in the Celtic sea leasing round, the project is an important example of pricing for the floating wind sub-sector. For further consideration of the potential of floating offshore wind, please see our briefing here.