Following an extensive review of the latest evidence, including the impact of global events on supply chains, the government has raised the maximum price offshore wind and other renewables projects can receive in the next Contracts for Difference (CfD) auction to ensure it is performing effectively.
The CfD scheme ensures renewable energy projects receive a guaranteed price from the government for the electricity they generate, encouraging continued investment in the UK - which is already home to the world's 5 largest operational offshore wind farm projects and has increased electricity generation from renewables from 6% in the first quarter of 2010 to 48% in the first quarter of this year.
The maximum strike price has been increased by 66% for offshore wind projects, from £44/MWh to £73/MWh, and by 52% for floating offshore wind projects, from £116/MWh to £176/MWh ahead of Allocation Round 6 (AR6) next year.
This will help ensure projects are sustainably priced and economically viable to compete in AR6, building on the success of previous CfD auctions. These have so far awarded contracts totalling around 30GW of new renewable capacity across all technologies since 2014.
In AR6, offshore wind will also be given a separate funding pot in recognition of the high number of projects ready to participate. This will ensure healthy competition among a strong pipeline of projects, helping the UK deliver on its ambition of up to 50GW of offshore wind by 2030, including up to 5GW of floating offshore wind.
First established nearly a decade ago, the CfD has helped reduce the cost of renewables. It aims to deliver good value to electricity consumers and drive down costs. The government's ambitions will create tens of thousands of new jobs by 2030, while also delivering the Prime Minister's priority of growing the economy.
The government is also today (Thursday 16 November 2023) publishing developed proposals to review applications from the 2025 auction not just on their ability to deliver low cost renewable energy, but also on how much a project strengthens the environmental and economic sustainability of the industry. As part of this, a project's social impact will also be considered – including how supply chains affect jobs and communities.
Energy Security Secretary Claire Coutinho said: "The UK is home to the world's 5 largest offshore wind farms projects.
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"Today we have started the process of our latest Contracts for Difference auction for renewables, opening in March next year. We recognise that there have been global challenges in this sector and our new annual auction allows us to reflect this.
"This is a vital part of our plan to have enough homegrown clean energy, bringing bills down for families and strengthening our energy independence."
Minister of State for Energy Security and Net Zero Graham Stuart said: "Last year's Contracts for Difference scheme saw more than 90 clean, homegrown energy projects and today we have shown our ongoing commitment to retaining our global leadership in renewable energy.
"This critical update to the scheme's design provides further clarity and confidence to the offshore wind sector and ensures the scheme remains competitive for renewable developers investing in new low carbon technologies.
"I look forward to securing another year of successful contracts in 2024, creating skilled jobs, reducing emissions and delivering maximum amounts of reliable clean energy for the British public."
Exchequer Secretary to the Treasury Gareth Davies MP said: "This scheme has played an indispensable role in driving forward renewable energy projects.
"Supporting industry to make investments in renewable energy is essential to achieving our net zero goals, vital to attracting investment to our coastal communities, supporting jobs, and levelling up the country. I am proud to see Britain remain at the helm of green energy innovation as we move ahead."
The government is also increasing maximum bid prices for other technologies, offering certainty for developers, and keeping the UK at the cutting edge of all renewables. These include:
• geothermal by 32% - from £119/MWh to £157/MWh
• solar by 30% - from £47/MWh to £61/MWh
• tidal by 29% - from £202/MWh to £261/MWh3
Contracts for Difference are currently awarded based on the outcome of a competitive auction.
The consultation published today invites views on how Sustainable Industry Rewards, formerly non-price factors, could be incorporated into the 2025 auction process. This would be for offshore wind and floating offshore wind companies and would mean additional payments if they reduce the carbon emissions in their supply chains, or if they improve their social benefits, ensuring AR7 is the cleanest and most impactful auction yet.
This could be done by investing in high-skilled jobs, using more environmentally friendly factories to assemble components, such as wind turbines, investing in new manufacturing facilities or skills in deprived areas, or finding new, innovative ways to reduce their carbon emissions, for example.
Building a more secure energy future will increase developer confidence in the sector every year. It will also enhance the UK's reputation as one of the most attractive places to invest in renewables.
The introduction of annual auctions last year means project developers now have more frequent opportunities to participate. This also allows the government to respond more quickly to ensure the scheme continues to support the sector, maintain investment and continue its success.
The government is also taking significant steps to ensure homes and businesses across the country can access the electricity produced from these new renewable projects by accelerating grid infrastructure and connections. A Connections Action Plan will be published later this year to reform the connection process and reduce connection timescales.
RenewableUK's Chief Executive Dan McGrail said: "Ensuring that the UK continues to unlock investment in renewables is critical to improve Britain's energy security, drive economic growth, support thousands of new green jobs and enable us to continue to create a lowest cost electricity system for billpayers. With intense international competition for investment in renewables, we welcome the strong commitment to the sector shown by government today, which demonstrates that the UK is intent on remaining a global leader in offshore wind, as well as innovative technologies like floating wind and tidal stream.
"There is the potential for the government to attract a record level of private investment in offshore wind projects next year, with at least 10 projects likely to be eligible, able to power 8.5 million homes each year and reduce the UK's need for gas by 39%. The framework they've set out today is a significant step forward in securing this. Although renewables haven't been immune from the recent rises in financing and supply chain costs which all major infrastructure projects have faced, they remain the lowest cost means of generating new electricity. Even at these new prices, there is still no cheaper way to meet the UK's rising electricity demand and increase our energy security."
Emma Pinchbeck, Energy UK's Chief Executive, said: "Offshore wind is the flagship technology for the UK in terms of meeting our net zero targets. It's also a critical one to ensuring our energy security through generating more clean domestic power - at the same time as boosting our economy and creating jobs. So we very much welcome the government responding to the increased global competition and the economic challenges facing developers by showing more ambition and giving greater confidence to investors, which will help build a domestic green powerhouse that benefits our own economy and people."
