The opening of the UK’s second Contracts for Difference (CfD) auction round on Monday was expected to see strike prices for offshore wind in the range of £80-85 ($100-106/€94-100) per MWh and maybe even lower, a leading energy consultancy predicts.

Chris Willow, associate director of BVG Associates, tells Recharge that around 1.5GW to 2GW of offshore wind capacity is likely to be awarded a CfD, but even that amount could be exceeded if strike prices are very low.

The long-awaited second CfD auction — which allows bids for offshore wind, wave, tidal stream, biomass technologies, and anaerobic digestion — will be open for applications from today until 21 April, according to the UK Low Carbon Contracts Company (LCCC) which administers the CfD scheme for the UK government.

Willow says it’s possible that only three large offshore wind projects will bid, so if prices are low enough, all three could win funding. The consultancy believes prices may even go below £80/MWh if bidders make aggressive assumptions about technology innovations and the cost of capital.

The consultancy believes the offshore wind industry needs to make a strong sector deal in which it offers the UK government lower prices and greater supply chain activity in return for higher levels of deployment and increased visibility.

The main challenge for the future of UK offshore wind is not the money but the continuing pipeline of available low cost projects, says Willow. “Very low prices in this round could mean that future rounds will not be competitive,” he warns.

Others point to the huge political significance for UK offshore wind should CfD prices come in at lower than the £92.50/MWh agreed last year for the controversial £18bn Hinkley Point C nuclear power station in southwest England.

Willow says there needs to be action to stimulate more new project development. “Dropping the upper limits substantially — to below £90/MWh — and defining a pipeline for the next 10GW that enables very big projects to compete would also help.

"The structure of the auction also needs to be addressed. For example, for the Dogger Bank area to provide a low LCOE, it probably needs to be done at a multi-project scale, but individual auctions don’t enable this approach.”

The round offers £290m of annual support for two delivery periods, which the UK’s Department of Business, Energy, Innovation and Skills (DBEIS) says will underpin generation able to power a million British homes.

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"This auction underlines that Britain is open for business to companies seeking to invest in low carbon energy," says energy minister Jesse Norman.

DBEIS says there has been £52bn of investment in renewable energy in the UK since 2010, and for the first time ever exactly half of the UK's electricity came from low carbon sources in the third quarter of 2016. These latest contracts will help the UK build on this success

Industry body RenewableUK calculates that this support budget would allow two offshore wind farms to go ahead, adding around 1.4GW of offshore wind.

According to international law firm Norton Rose Fulbright, a number of planned and consented UK offshore projects could potentially be bidders in this second round.

These are Dong Energy’s 1.8GW Hornsea 2, RWE Innogy/Statkraft’s up-to-900MW Triton Knoll, EDPR’s 1.12GW Moray Firth, and Statoil’s 1.2GW Creyke Beck A — the first of four consented 1.2GW projects in the 4.8GW Dogger Bank zone.

A Statoil spokeswoman declined to comment on reports that it was planning to bid for a CfD for Creyke Beck A. “We are still maturing the project,” she tells Recharge.

Willow thinks “Dogger Bank is unlikely to be in this round”, and that “the limit of 1.5GW for applications would also seem to rule out Hornsea 2”.

Other analysts suggest that while the £290m budget should be capable of buying 1.5-2GW of offshore wind, that the auction could still be massively oversubscribed.

“If 1.5-2 GW new offshore wind are secured in the second UK CfD auction, that would be good news for the offshore wind industry — in and outside the UK," says WindEurope chief executive Giles Dickson. "Looking into the 2020s we look to the UK to install at least 1GW new offshore wind a year. The Netherlands are likely to be at that level at least, and Germany have already defined their 2020s volumes in legislation. So the UK will need to be ambitious to retain its leadership position. We call on the UK to confirm the 2020s volumes soon to give investors visibility.”

Applicants are due to be notified by the LCCC as to whether their projects have qualified by 15 May.

LCCC says should there be appeals from developers — as there was in the first allocation round at the end of 2014/2015 — then there are five possible dates for the final awards, depending on just how many appeals are lodged.

The latest possible date for final CfD allocation is 11 September, but if there are fewer appeals then awards might be made earlier on 22 June, 29 June, 13 July or 20July.

DBEIS set a draft 15-year administrative strike price of £105/MWh for offshore wind projects deploying in 2021/22, and £100/MWh for 2022/23 deployment, both at 2012 prices.

The government has previously indicated that it plans to hold three CfD auctions during the lifetime of this parliament (which is due to end in May 2020), with a total budget of up to £730m, but no future dates have been set beyond the current round.

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“Brexit, and the resulting lack of announcements about future subsidies, which have to date supported much of the sector, is causing a period of inertia and stalling many new projects,” says Rachel Nutt, tax partner and head of renewable and sustainable energy at business advisors’ MHA MacIntyre Hudson.

“It is creating a very challenging and uncertain time for renewable and sustainable energy businesses.

“Everyone is assured there is a huge power demand for the future, lack of grid capacity, and a need to hit green energy targets; however, the lack of clarity on funding has caused a significant slowdown in the market.

“Even with the advent of more innovative battery storage capacity and falling panel prices, the sector needs a new subsidy announcement to gain serious momentum in the areas of onshore wind and solar,” she adds.

A spokesman for Innogy agrees. “If we want to continue to build upon this and establish a truly world-class UK supply chain, and continue to see costs reducing, it is important to have more certainty around future CfD auctions, in particular the size of budget and timescales.”