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No new offshore wind project contracts have been bought by developers at a key government auction, dealing a blow to the UK’s renewable power strategy.
Results showed no bids for new offshore wind farms, but there were deals for solar, tidal and onshore wind projects.
Firms have argued the price set for electricity generated was too low to make offshore wind projects viable.
The government said a “global rise” in inflation impacting supply chains had “presented challenges for projects”.
It said while offshore and floating offshore wind projects did not feature on the agreed deals list, the outcome was “in line with similar results in countries including Germany and Spain”.
The Department for Energy Security and Net Zero said “significant numbers” of solar power, onshore wind, tidal energy schemes, and for the first time, geothermal projects, which use heat from the ground to generate power, had been awarded funding.
But the lack of offshore wind will be a blow to the pledge to deliver 50 gigawatts (GW) of offshore wind by 2030 compared with 14GW today.
Renewable energy groups have said that alternative renewable projects, such as solar, cannot do the heavy lifting in generating the power that offshore wind does.
The technology has been described as the “jewel in the UK’s renewable energy crown”, but firms have been hit by higher costs for building offshore farms, with materials such as steel and labour being more expensive.
The UK is a world leader in offshore wind and is home to the world’s four largest farms, supporting tens of thousands of jobs, which provided 13.8% of the UK’s electricity generation last year, according to government statistics.
The government’s annual auction invites companies to bid to develop renewable energy projects and contracts to supply the UK grid with electricity. The scheme ensures projects receive a guaranteed price from the government for the electricity they will generate, which it is hoped will enable companies to have the confidence to invest.
The deal, called a Contract for Difference (CFD), means if electricity prices are above the price set, the companies pay the excess back to energy suppliers, which should help to cut bills. If prices fall below the guaranteed price the energy suppliers – and customers – pay the company the difference.
It was hoped offshore wind in the latest round could have helped generate five gigawatts of power, enough to run five million homes, but wind farm builders had warned for months that the government was not taking into account how much the costs of developing them had soared.
Industry insiders have said that the £44 per megawatt hour price floor set for the latest auction failed to take account of higher costs.
‘Lost opportunity’
Keith Anderson, chief executive of Scottish Power, said the outcome of the auction was a “multi-billion pound lost opportunity to deliver low-cost energy for consumers and a wake-up call for government”.
He said the contracts had been “recognised globally as a lynchpin of the UK’s offshore success”, but said “the economics simply did not stand up this time around”.
“We need to get back on track and consider how we unlock the billions of investment in what is still one of the cheapest ways to generate power and meet the UK’s long-term offshore wind ambitions for the future,” he added.
Alistair Phillips-Davies, chief executive of SSE, which is currently building the world’s largest offshore wind farm, said offshore wind power was a much cheaper energy source and about half the price compared with other sources including fossil fuels.
But he told the BBC’s Today programme that while the UK needed to build more wind farms, “for this particular auction unfortunately the prices were just set too low” for electricity generated to make investment viable.
On Friday, wholesale gas prices in the UK rose by about 10% after strike action kicked off at two major liquefied natural gas (LNG) facilities in Australia.
Ed Miliband, Labour’s shadow energy security and net zero secretary, said the result of the auction was an “absolute disaster for Britain”, but should have been avoidable. He argued the government had been warned by the industry that “unless they adjusted the auction price this would happen”.
“They [the government] should be hanging their heads in shame,” he told the BBC’s Today programme.
While there were no bids for offshore contracts, the government said a total of 95 clean energy projects had secured funding of £227m, up from 93 in the previous auction, securing “enough to power the equivalent of two million homes”.
Energy and Climate Change Minister Graham Stuart said the government was “delighted” that the auction had “seen a record number of successful projects across solar, onshore wind, tidal power and, for the first time, geo-thermal”.
He added that offshore wind was “central to our ambitions to decarbonise our electricity supply”, and said the government would “work with industry to make sure we retain our global leadership in this vital technology”.