131 new renewable energy projects have been approved in the UK’s new Contracts for Difference auction, surpassing the 92 projects in the previous auction in 2023, when no offshore wind projects were backed. In the new round, 9 offshore wind projects (5GW in all) got contracts, including Hornsea 3 and 4 off the coast of Yorkshire- which when built will be largest and second largest wind farms in Europe. Floating wind also got a 400MW project in Scotland.
With 3.3 GW in all backed, solar also did very well, better than in the previous round. With planning rules now changing, the new round backed over ninety 5MW or more PV projects, including some large solar farms (of up to 49MW). With planning rules also changing for on shore wind, it’s also did well, with 22 projects, 990MW in all, 1 in England, 3 in Wales, the rest in Scotland, including 120 and 130MW projects. And in terms of new technology, 28 MW of tidal stream got backed, with HydroWing set to deliver 10 MW in Wales, while in Scotland, MeyGen will provide 9 MW, Seastar 4 MW, Magallane 3 MW, & Ocean Star Tidal 2 MW. Seems that at last it's getting going, with MeyGen being described as ‘the largest consented tidal stream project in the world’.
Cornwall Insight Consultants said that this sixth Auction Round (AR6) will raise household energy bills by around £4.59 by 2030-31, though it is expected to help stabilise energy costs in the long term- the auction led to strike prices below the maximum allowed (in the 50% boosted £1.5bn allocation): 2 of the offshore wind projects were 19% under the cap set, the other 7 were 25.7% below. But on shore wind was 20.5% under its price cap. So was floating wind, while tidal was 34% under, although it’s still the most expensive option, with a £172/MWh strike price. Floating wind was the next most expensive at £139.9/MWh. Two offshore wind projects got £58.9/MW, the other 7, with permitted price reductions, got £54.2/MWh. On shore wind did better at £50.9/MWh. And Solar PV came out cheapest at £50.7/MWh- all these strike prices being in 2012 money.
The Guardian noted that ‘almost two-thirds of the new offshore wind capacity that was eligible to bid in the auction failed to bid low enough to secure a contract’. But it quoted Tom Glover, the chief executive of RWE’s UK business, saying that ‘this shows how competitive the auction was, which is a good thing for the consumer’. It said the offshore wind projects were awarded contract prices of between £75 and £82/MWh in today’s money, ‘below the typical price of electricity in the wholesale power market, which now stands at £84/MWh – and well below the guaranteed price of £128/MWh for new nuclear plants’.
With solar doing even better than that, and much better than in the previous round, and on shore wind also back in the race after being blocked, the UK’s nuclear future does seem a little uncertain. Especially since, in the next phase, new solar and on shore wind projects, freed from some planning constraints, could do even better. Certainly, Labour’s removal of the planning blocks on them seems to have been popular, getting 60% of public support in both cases in a recent You Gov poll. However capacity factors for onshore wind are higher than for offshore wind, and much higher than for solar, so in terms of overall power production, offshore mostly wins out. But although it did quite well this time around, and continues to lead the pack, with AR6 supporting much more offshore wind capacity than solar, it has been argued that 28GW more offshore wind will be needed if the UK is to meet its 55GW offshore wind 2030 target.
Overall though, with 9.6GW of new renewables backed, the sixth round of the CfD was seen as good news, building on the previous rounds, as shown by the Low Carbon Contracts Company, which manages the CfD system. It does note that ‘the strike prices achieved in this round are, on average, higher than those seen in AR5’, when solar got £47/MWh and offshore wind £52.29/MWh (in 2012 money). However, costs for all energy technologies have risen in recent years, partly due to the rise in global fossil gas costs as a result of the Russian invasion of Ukraine. Hopefully, as renewables develop and spread, overall energy costs will stabilise. The CfD certainly does seem to have helped to drive down costs for new techs like floating wind and tidal stream.
Interestingly, new technologies like this were mention in a letter to the Treasury, issued by Offshore Energies UK on behalf of 42 energy firms opposing plans to increase windfall taxes on oil and gas profits from 75% to 78%, extend the tax until 2030 and abolish tax incentives for further investment. It said that reduced investment and greater uncertainty would be felt throughout the supply chain and also by firms who invest in renewable energies using cash generated through fossil fuels. ‘The companies investing in nascent opportunities like floating offshore wind and carbon capture and storage will require the cashflow from a stable and predictable oil and gas business to fund these opportunities’. But the Treasury said ‘our plans for a new National Wealth Fund and establish Great British Energy will create thousands of new jobs in the industries of the future.’
Well, we will see. The National Wealth Fund is meant to help support new tech ideas like this, and GB Energy too- and that has got through the second stage of parliamentary scrutiny. But there’s a way to go, and, as Energy Secretary Ed Miliband said, GB Energy ‘won’t become EDF overnight’. However, the new CfD round does indicate that there plenty of projects out there, and investment opportunities for continued capacity growth. Although some think that the CfD system needs a bit of revision to ensure longer-term success.
I’m taking a short holiday break from this posting series- back soon
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