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- By Michael Race
- Business reporter, BBC News
Image source, Getty Images
No new offshore wind projects have been bought by developers at a key government auction, dealing a blow to the UK’s renewable power strategy.
Results showed no bids for new offshore wind farms, but there were deals for solar, tidal and onshore wind projects.
Firms have argued the price set for electricity generated was too low to make offshore wind projects viable.
The government said a “global rise” in inflation impacting supply chains had “presented challenges for projects”.
It said while offshore and floating offshore wind projects did not feature on the agreed deals list, the outcome was “in line with similar results in countries including Germany and Spain”.
The Department for Energy Security and Net Zero said “significant numbers” of solar power, onshore wind, tidal energy schemes, and for the first time, geothermal projects, which use heat from the ground to generate power, had been awarded funding.
But the lack of offshore wind will be a blow to the pledge to deliver 50 gigawatts (GW) of offshore wind by 2030 compared with 14 GW today. Renewable energy groups have said that alternative renewable projects, such as solar, cannot do the heavy lifting in generating the power that offshore wind does.
The technology has been described as a the “jewel in the UK’s renewable energy crown”, but firms have been hit by higher costs for building offshore farms, with materials such as steel and labour being more expensive.
The UK is a world leader in offshore wind and is home to the world’s largest four farms, supporting tens of thousands of jobs.
The government’s annual auction invites companies to bid to develop renewable energy projects and contracts to supply the UK grid with electricity. The scheme ensures projects receive a guaranteed price from the government for the electricity they will generate, which it is hoped will enable companies to have the confidence to invest.
The deal, called a Contract for Difference (CFD), means, if electricity prices in the future rise above that level, the companies pay the excess back to the Treasury. If prices fall below it the Treasury pays the company the difference.
It was hoped offshore wind in the latest round could have helped generate five gigawatts of power, enough to run five million homes, but wind farm builders had warned for months that the government was not taking into account how much the costs of developing them had soared.
Industry insiders told the BBC that the £44 per megawatt hour price floor set for the latest auction failed to take account of higher costs.
‘Multi-million pound lost opportunity’
Keith Anderson, chief executive of Scottish Power, said the outcome of the auction was a “multi-billion pound lost opportunity to deliver low-cost energy for consumers and a wake-up call for government”.
He said the contracts had been “recognised globally as a lynchpin of the UK’s offshore success”, but said “the economics simply did not stand up this time around”.
“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,” he added.
Ed Miliband, Labour’s shadow energy security and net zero secretary, said the result of the auction was an “absolute disaster for Britain”, but should have been avoidable. He argued the government had been warned by the industry that “unless they adjusted the auction price this would happen”.
“They [the government] should be hanging their heads in shame,” he told the BBC’s Today programme.
The government while there had been no offshore bids for contracts, a total of 95 clean energy projects had secured funding of £227m, up from 93 in the previous auction, securing “enough to power the equivalent of two million homes”.
Graham Stuart, Energy and Climate Change Minister, said the government was “delighted” that the auction had “seen a record number of successful projects across solar, onshore wind, tidal power and, for the first time, geo-thermal”.
He added that offshore wind was “central to our ambitions to decarbonise our electricity supply”, and said the government would “work with industry to make sure we retain our global leadership in this vital technology”.
Simon Virley, vice chair and head of energy and natural resources at consultancy firm KPMG, said the lack of new offshore wind projects was a “major setback” in renewable energy production and the first time since such schemes were launched in 2015 that there had been no new offshore projects announced.
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