UK offshore wind developers snub auction on costs, risk climate goals

LONDON, UK: Offshore wind developers refrained from participating in the UK’s recent renewable energy auction, citing government-offered prices, which they believe do not align with rising industry costs, echoing concerns faced by wind projects worldwide.

The absence of offshore wind bids in the auction has raised concerns regarding the UK’s 2050 net zero emissions target, which aims for 50 gigawatts (GW) of offshore wind capacity by 2030, compared to the current 14 GW.

While offshore wind projects secured substantial funding in a 2022 auction, developers opted out of the latest round due to concerns over surging inflation and its impact on supply chains, according to the UK’s Department for Energy Security and Net Zero.

Rising costs have been a global issue in the offshore wind sector, prompting many developers to withdraw from projects or seek to renegotiate terms. Orsted, a leading developer, recently announced significant impairments to its U.S. projects, while turbine manufacturers have encountered quality issues as they scale up the technology, impacting earnings.

Despite the auction’s outcome, the UK’s Energy and Climate Change Minister Graham Stuart reaffirmed the country’s commitment to offshore wind, stating, “Offshore wind is central to our ambitions to decarbonize our electricity supply and our ambition to build 50GW of offshore wind capacity by 2030, including up to 5GW of floating wind, remains firm.”

The UK’s contract-for-difference (CfD) scheme, introduced in 2014, offers renewable energy developers a guaranteed electricity price. However, the government imposed a price cap for offshore wind bids in this round, which critics argue was too low to meet investor costs.

Renewable energy campaign group Britain Remade criticized the price cap, stating that it made it impossible for investors to cover their expenses and would cost consumers £1 billion annually.

The government initially offered £227 million in subsidies to boost renewable power projects, increasing the amount in August following developer requests for more funding.

The auction results prompted strong reactions, with Ed Miliband, shadow energy security and net zero secretary for the UK’s opposition Labor Party, calling it an “energy security disaster”. He also accused the government of undermining the offshore wind industry.

In the latest auction, awards for all renewable technologies totaled 3.7 GW, a significant decrease from the 11 GW of projects that secured contracts in the previous round. Solar power projects claimed the most significant share with 1.9 GW, followed by onshore wind with 1.8 GW. Both solar and onshore wind prices saw increases compared to the previous round.

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