A combination of big ambition and a highly-effective auction mechanism have helped the UK drive offshore wind towards parity with future wholesale power prices, said industry commentators as they hailed the success of its latest 6GW auction.
Offshore projects dominated the latest allocation of contract-for-difference (CfD) support with 5.5GW of the deals on offer, with bids coming in as low as £39.65/MWh ($48.8/MWh) for delivery by 2025.
That marked a 30% fall on offshore wind’s showing in the last round in 2017 and continues a decade-long cost reduction record that the UK’s Carbon Trust said was “very likely to be close to future wholesale electricity prices” as it praised the CfD mechanism with its guaranteed ‘strike prices’
The Carbon Trust said: “We are now in a market where developers are no longer receiving subsidy payments from government, but they are given revenue certainty. The CfD regime has shown to provide vital long-term revenue certainty for developers, which is essential for a project’s bankability.”
The body said offshore wind is now well placed to help the UK hit its sector target of 30GW of capacity by 2030, and wider ‘net-zero’ ambitions for 2050.
Wind industry group WindEurope said other European nations should take note of the success of the UK sector.
CEO Giles Dickson said: “The cost of offshore wind continues to fall, now to below €50/MWh including grid connection. Offshore wind is now the second cheapest form of new power generation in northwest Europe, behind onshore wind.”
Dickson added: “This auction also confirms the UK’s position as the leader in offshore wind in Europe. They have the largest auction plans: 2GW a year to 2030. They’ve the best auction model, the two-sided Contract for Difference: requiring wind farms to pay back the difference when the market electricity power exceeds the guaranteed price delivers the lowest overall societal costs.
“And they’ve the best model for government-industry collaboration with the wind industry committing to 27,000 jobs on the back of the government’s commitments on future auctions.”
The announcement of the latest CfD award comes a day after the UK Crown Estate announced a 7GW-plus future leasing round for new seabed development rights into the 2020s.
However, in the background to the awards remains a live legal case brought by UK developer Banks Renewables, which is trying to force a judicial review of the CfD round's exclusion of most onshore wind projects.
No date has been set for the hearing and developers were warned before the auctions results were released that they could face months of uncertainty, with unpredictable implications for the process if the developer wins its case.
James Brabben, wholesale manager at Cornwall Insight, said the progress of the Banks case would be one to watch in the aftermath of the auction "for its impact on CfDs just awarded".
But Brabben added: "The rapid fall in cleared prices for offshore wind since the first CfD allocation round is profound, amounting to a 66% reduction in less than five years. Whatever way you look at it, this is a landmark moment."
