It’s tempting to state – as some have – that the offshore wind ‘bubble’ has burst, but that is not the case. What has burst is a form of groupthink among legislators that held sway on both sides of the Atlantic that believed the economic conditions that prevailed as offshore wind technology matured and became cost-competitive with other forms of generation, would always prevail. We know now what should have been obvious all along: however great the cost reductions that have already been achieved, inflation, higher interest rates and steeply rising costs quickly have an impact on the business case in any industry.

In the UK, offshore wind remains the principal low-carbon energy generation source. It’s one of the cheapest forms of electricity. In the US, most East Coast states have clean energy targets they still need to meet. More than another affordable form of low-carbon generation, offshore wind will enable them to do so, but contracts need to change.

Fortunately, there are signs this is happening, and in addition, East Coast states are wisely planning joint procurement of offshore wind to drive procurement at scale and create a pipeline large enough for investment in manufacturing and framework agreements between developers and contractors. As one analyst put it recently, the contracts in play until recently “were not designed for current economic conditions.”

Confirmation there were no bids for offshore wind in AR5 was a huge disappointment, but hardly a surprise. The government botched the process spectacularly and ignored the fact that continuous pressure to deliver lower and lower prices is not sustainable in an era of inflation. In the next allocation round, administrative strike prices will have to rise to take account of inflationary pressures, interest rates and supply chain challenges, and be set at a level that developers can meet while building financially viable windfarms.

In the US, Ørsted, faced with the same, much-changed macroeconomic situation plus some notable supply chain bottlenecks, cancelled two projects with combined capacity of more than 2 GW, a major setback for President Biden’s 30 GW by 2030 plan. But when the New York State Public Service Commission denied petitions filed by developers seeking billions of dollars in additional funding, we shouldn’t have been surprised. They have ratepayers to think about and, as another analyst pointed out, “Just as with the recent auction in the UK, increases in the base cost of supplies in comparison to a fixed price for electricity sales undermined the business case.”

And as a third succinctly put it, “Up to now, contracts were written when the world was awash with cheap capital.” All that has changed, and in future, they need to be inflation-linked, so that developers are assured of a viable return on investment as inflation waxes and wanes.