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HomeBusinessGovernment will raise prices to restart offshore wind auction

Government will raise prices to restart offshore wind auction

  • UK raises offshore wind prices
  • Ensuring viability for projects
  • Commitment to 50GW target

In response to industry criticism of the unsuccessful previous auction for new developments, the energy secretary has taken action.

The government will increase the price offered to offshore wind farm developers this week to avert the complete failure of its most recent auction round, which threatened the United Kingdom’s net-zero goals.

An announcement regarding the target price of £73 per megawatt-hour for the sixth auction round is anticipated by Thursday, marking a significant increase from the £44 MW/h offered at auction for offshore wind capacity last year, which failed to entice a single bidder.

Industry Concerns and Viability

The Department for Energy Security and Net Zero, under the leadership of Grant Shapps at the time, had been advised by industry executives that the price offered was inadequate to offset the inflation-driven increases in material and supply chain expenses associated with wind farm construction.

Industry sources reportedly informed the government that new projects must be funded at or near £70 to be viable. Clare Coutinho, appointed Energy Secretary the week of the last failed auction, hopes to achieve this criteria.

“Unlock your financial potential with free Webull shares in the UK.”

In effect, the proposed price ensures that generators will be compensated for their power.

This standard governs the auction of ‘Contracts for Difference’ (CfD), which subsidises renewable electricity projects.

The government makes up the difference if power prices fall below the “strike price” agreed upon at auction under CfDs.

As has been the case for the majority of the previous two years, in the event that prices surpass the agreed-upon amount, the generator reimburses the surplus to the suppliers and ultimately to the consumers.

Efficiency of CfDs in Wind Energy

Until recently, CfDs had proven to be extraordinarily efficient at generating new wind and renewable energy capacity.

The government aims to triple offshore wind capacity from its present level of approximately 14 gigawatts to 50GW by 2030, consequently advancing its net-zero goals.

Net-Zero Strategy Challenges and Solutions

A pivotal component of the United Kingdom’s net-zero strategy, this objective necessitates a transition to electric home heating and transportation. It also requires the decarbonization of the power grid.

The failure of AR5 jeopardized an already ambitious objective. Ministers may increase the budget allocated to fund new initiatives and the capacity of those they attempt to secure.

The global deployment of offshore wind projects has been delayed by escalating expenses.
As a result, governments will be required to offer greater incentives for projects. Ultimately, consumers must support efforts providing energy at a lower cost than alternatives derived from fossil fuels.

A spokesperson for the Department of Energy Security and Net Zero stated, “We remain fully committed to our 50GW target by 2030, and our net-zero objectives are not in jeopardy.”

“Since 2014, the United Kingdom has contracted 20GW of offshore wind, solidifying its position as a global leader in the field by hosting the five largest operational wind farms.”

Over 90 solar, onshore wind, tidal, and geothermal projects won Contracts for Difference in the previous round. They provided enough energy to power the equivalent of two million homes.

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