Offshore wind needs to ramp up in next CfD

 Wind power has been a big success story in the UK. There is now 15GW in place on shore, and its hoped to double that by 2030 since the previous governments planning blocks have been removed. But although they started to be developed later than on shore projects, the UK now also has installed around 15GW of offshore wind capacity and has plans for much more- maybe up to 50GW by 2030.  

This progress has been driven by falling costs, and that’s expected to continue, but there may been some issues emerging as material and other manufacturing costs rise in line with wider trends in the economy. That has led to some project rethinks. For example, Orsted’s planned 2.4 GW Hornsea 4 offshore wind farms extension has been halted due to tight economics, and major energy supplier SSE is cutting back funding of new projects-  big bad shocks.  

There is some better news, with 90 more wind turbines to be installed off the Sussex coast from Bognor Regis, joining the 116 already there in the Rampion wind farm. And the Crown Estate has released sites around the UK for an extra 4.7GW worth of offshore wind. However, whether sufficient growth can continue to meet the 50GW target will depend on whether enough projects can get support from the next Contract for Difference (CfD) auction round- AR7.

Not everyone is convinced it can be done.  With inflation and capital costs rising Offshore Energies UK says offshore wind may only reach around 35 GW by 2030, nowhere near the 43GW minimum target. To close the gap, it says the next CfD round must back a record 8.4 GW of new offshore capacity- the previous round, AR6, finalised in Sept 2024, supported about 5.3 GW of offshore contracts, most with a strike price of £54/MWh. 

Will AR7 do better? It hasn’t helped that it has been delayed, with changes in the procedures and timing being introduced.  There were fears that it would slide into next year, although optimistically it was thought that the auction might be opened in Sept, with the results hopefully then being know by the end of the year. But at the end of May the government announced that the timeline for offshore wind projects, both fixed bottom mounted and floating systems, had been separated from that for other technologies, with the offshore wind auction expected to open in early August and the results known between late 2025 and early 2026- so possibly by December 2025, but maybe not until the second half of February 2026.

We will have to wait and see how it goes. But to move things along and strengthen the offshore wind infrastructure, including manufacturing, the government has introduced a Clean Industry Bonus (CIB), for CfD offshore wind projects that choose to invest in shorter more sustainable supply chains, or a port located in a UK deprived area. If developers committed to that, and to 7- 8GW, the CIB was initially set to deliver a reward of up to £200m in total, around £20m/GW. Clearly the government thinks offering a  bonus payment for extra sustainability measures is worthwhile – indeed it has now more than doubled the CIB cap to £554m. 

Will that extra help deliver more capacity? Or will even more help be required?  BNEF  says that the UK will miss its 2030 offshore wind target by 10GW, while Siemens is a bit more optimistic and says there will only be a 6GW shortfall. But clearly there could be infrastructure or other problems e.g.in relation to grid related issues in Scotland, which may have an impact. 

We will no doubt get to hear a lot more about the options for the UK and elsewhere at this years Global Offshore Wind event in London. And the UK Treasury is just about to announce its overall energy funding programme, which may include allocations for wind, solar and other green energy projects, including, possibly, more tidal stream projects- some new work in Wales is looking promising. Nuclear may also do well, with decisions on Sizewell C and SMRs likely, CCS too, but renewables are still likely to seen as central. 

So, there may be more support on offer for them, along perhaps with more details of the CfD capacity targets. Certainly, soon we are likely to see initial CfD draft strike price assumptions for all the renewable options, including on shore wind and solar PV. Both of those are likely to be slightly cheaper than off shore wind- they were both at around £50/MWh in AR6. So, they their capacity is likely to continue to expand.  But there are limits: they have low plant  load factors, around 10% for PV and 20% for on shore wind, depending on location, compared to around 40% or more for some offshore projects. 

Although what is equally important, in overall power system stability terms, is how much energy storage capacity will be available.  The key options include batteries for short to medium duration, well matched to solar PV, which is booming these days, and pumped hydro for medium to long term storage, with compressed air and liquid air also being in the running for longer-term storage.  Cavern stored green hydrogen for long duration bulk storage looks well suited to wind balancing, while on site liquid (cryogenic) or compressed gas hydrogen storage might play important roles in the industrial economy – although some say green methane is easier to work with and easier to store.  

There are plenty of storage options then, with batteries (including larger flow batteries) still leading the pack for short to medium duration storage. But Ofgem has launched a new cap and floor investment support system for long duration storage, and that, along with the capacity market auction system, may become as important as the CfD system, since they can help to ensure that power and demand variations can be balanced over time. Lots to be getting on with then, and not just offshore wind and the other renewables - domestic energy saving initiatives too, although sadly, they are still not attracting enough support.