Pressure on seventh CfD round to meet UK offshore wind target

• UK government does not rule out increasing budget for offshore wind in next auction
• Capacity would need to average 16.60GW in the next two auctions to procure the capacity needed to reach revised 2030 target
• But only 10.6GW of offshore projects have the required development consent to enter the auction

LONDON (ICIS)–The UK government has left the door open to a possible budget increase for offshore wind at an upcoming renewable capacity auction under the Contracts for Difference (CfD) scheme, after it said it intends to quadruple installed capacity for the technology by 2030.

But ICIS calculations show that, depending on the strike price, the budget would have to increase between 2.3-5.4 times in order to allow for a capacity award consistent with meeting the revised target. And even if it did, planning hurdles are set to prevent this, with the pressure shifting on subsequent auction rounds.

The budget for offshore wind in the upcoming round is currently £800m and the maximum strike price has been set at £73/MWh.

A spokesperson for the department for energy security and net zero told ICIS that applications for the sixth allocation round are currently being assessed. “The Secretary of State will then carefully consider whether to increase the budget,” they said.

The government did not confirm an exact figure for the revised offshore wind target. To present an idea of how much quadrupling offshore wind capacity by 2030 would translate into, ICIS quadrupled its forecast for installed capacity by the end of 2024, resulting in 61.08GW by 2030. Actual intended capacity may vary.

A trader said: “I suspect they will increase the budget; we have had people backing out of projects and these will be the people saying they need better returns so the budget will need to be higher for the amount of capacity the government wants.”

CFD BUDGET

ICIS Analytics calculated that, in the next two CfD rounds, capacity will need to average 16.60GW per auction to obtain the amount needed to reach the 2030 target. This is to allow construction time which is usually between six to eight years.

ICIS calculated that, if the auction cleared at a strike price of £60/MWh, a budget of £800m will be able to finance 4.2GW of capacity.

If the auction cleared at the maximum strike price of £73/MWh, the budget would only be able to fund 3GW.

If the budget was increased to £1bn, 5.3GW of capacity could be obtained with a clearing price of £60/MWh.

Similarly, if the auction cleared at the maximum strike price of £73/MWh, 3.9GW could be obtained.

SHORTFALL

While an increase in budget to £1bn would procure more offshore wind capacity, a larger budget is required to obtain the capacity needed to meet the 2030 target.

ICIS Analytics calculated a budget of nearly £1.8bn is needed to obtain 16.60GW of capacity in the sixth auction if it cleared at the lowest price of £44.1/MWh.

This was modelled as the lowest figure as it is just above the maximum clearing price of the fifth auction round, which was £44/MWh and was too low to attract bids ,

If the auction cleared at £60/MWh, which is a base case scenario, the budget would need to be nearly £3.2bn.

Furthermore, if the auction cleared at the maximum strike price, a £4.3bn budget is required.

However, according to ICIS analyst Robbie Jackson-Stroud, there are too few entrants to obtain 16.60GW for the auction, as only 10.6GW of offshore projects have the required development consent to proceed to auction.

This therefore puts increasing pressure on the seventh auction round, due to be held in 2025, to obtain offshore wind capacity needed to meet the 2030 target.

As things currently stand, ICIS analytics forecasts only 39GW of offshore wind capacity by 2030 under a base case scenario, therefore falling short of the ambitious target.

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