1 October 2021
UK launches largest ever renewable energy auction
The UK Government revealed the auction criteria for the upcoming fourth CfD auction round. The auction will be the largest ever renewable energy auction in the world and could see more than 12 GW of new renewable capacity added. It will cement the UK’s position as global leader in offshore wind. Notably it will also enable the return of UK onshore wind and the market uptake of floating wind.
The UK Government announced plans to beef up the fourth allocation round of Contracts for Difference (CfDs) to an overall budget of £265m. This announcement will boost jobs and the UK supply chain, while reducing energy bills and helping the UK to meet its climate targets. And it will attract private investors. RenewableUK, the renewable energy association in the UK, estimates that the Government’s financing commitments could unlock private investment of over £20bn, further accelerating the UK energy transition.
Initially the Government had planned to limit the new capacity built under the 2021 CfD auctions to 12 GW. The renewable energy industry had called for this cap to be lifted, reflecting the growing appetite from companies and investors in UK projects. Monday’s announcement removed this overall capacity cap. This means that more than 12 GW of offshore wind could get rewarded.
The Government also published the auction criteria for the fourth CfD allocation. The auction will include three different pots. The first pot is dedicated to established onshore technologies, including onshore wind, solar and hydropower. The Government provides a budget of £10m for a total capacity capped at 5 GW. This pot is technology-neutral, meaning that the different technologies compete to get awarded. To ensure that the different technologies in this pot have a fair chance to be awarded in the auction, the maximum capacity of successful bids for both onshore wind and solar is limited to 3.5 GW. It is the first time since 2015 that the UK Government provides public support for onshore wind energy.
The second pot is dedicated to less established technologies, including floating offshore wind, tidal stream, geothermal and wave energy. With £55m the budget for this pot is much higher and there is no cap to the total capacity build with the £55m. The second pot is acknowledging the key role floating offshore wind will play in achieving the UK’s climate and energy commitments. £24m of the total £55m budgeted in pot two are ringfenced for floating offshore wind projects. The pot is also available for remote island wind solutions.
Floating offshore wind is vital for the UK net-zero pledges. Setting aside £24m will provide an essential contribution to scale up the technology and further reduce its costs. WindEurope estimates that the costs for floating wind will fall by 65% by 2030 and that floating wind will reach cost parity with bottom-fixed offshore wind after 2040. There is rapidly growing international demand for floating wind technology. The UK could become an exporter of the technology with this continued commitment.
The third pot is dedicated solely to offshore wind development. The size of this pot exceeds the other pots by far. In its mission to make the UK the “Saudi Arabia of wind energy”, as formulated by UK Prime Minister Boris Johnson, the UK Government will provide a total of £200m to support offshore wind. The Government acknowledges offshore wind energy as a cheap and clean form of electricity production and aims for a maximum of new capacity by lifting the capacity cap for this pot.
In the last auction, offshore wind costs tumbled by a third to record lows of about £40MWh, well below the price of electricity in the UK wholesale energy market, meaning households are unlikely to face higher charges on their energy bills.
The UK aims to install 40 GW of offshore wind by 2030. Today it stands at 10 GW. The offshore wind sector could support up to 60,000 jobs by 2030. The fourth CfD auction round will close by the second or third quarter of 2022.
WindEurope CEO Giles Dickson said: “This huge offshore wind auction, combined with a welcome return for new onshore wind, make the UK no. 1 by far in Europe this year in how much new wind power they’re supporting. As Contract for Difference auctions, offering a perspective of stable revenues, they’ll attract huge investor interest. And the financing costs will be low, reducing energy prices for consumers. And it’ll be cheap for the UK Government too, as they’ll get paid back as well as paying out. The more than 12 GW of new wind farms that could be built on the back of the auction will create thousands of jobs as well, notably in coastal communities and rural areas.”