New UK offshore wind budget still insufficient to reach 2030 target

• UK government announced a budget boost of more than £500m for the sixth CfD auction round, raising the budget to over £1.5bn
• This means offshore wind funding has increased from £800m to £1.1bn, the largest budget ever
• Despite this vast increase, the budget will not be enough to procure the capacity needed to meet UK’s 2030 offshore wind target

LONDON (ICIS)–Modelling by ICIS Analytics indicates that the UK government’s latest £530m funding increase to its Contracts for Difference (CfD) scheme is too low to procure the capacity required to meet its 2030 offshore wind target.

The UK aims to quadruple offshore wind capacity by 2030, a target the Labour government first announced before being elected.

The budget boost was announced on 31 July, ahead of the sixth auction round of the Contracts for Difference (CfD) scheme this summer, and raises the overall budget to over £1.5bn.

The pot for offshore wind has now increased from £800m to £1.1bn, the largest ever budget.

But to meet the UK target, nearly £3.2bn would be needed – if the auction cleared at a base case scenario strike price of £60/MWh, ICIS analysis shows.

Furthermore, there are too few auction entrants to procure the 16.6GW of offshore wind capacity needed in the first place. This is because only 10.6GW in projects have the required development consent to proceed to auction.

“Last year’s auction round was a catastrophe, with zero offshore wind secured,” energy secretary Ed Miliband said in a statement, adding that the new budget would support construction work for the sector.

The unsuccessful 2023 fifth auction round saw no offshore wind bids mainly due to a low strike price in the wake of increasing supply chain costs.

The previous government had set the maximum strike price for offshore wind in the sixth auction at £73/MWh, allocated offshore wind its own funding pot and set a budget of £800m.

The new government’s aim to quadruple offshore wind capacity is also an increase on the UK’s previous target.

OFFSHORE WIND ANALYSIS

To interpret targetted 2030 capacity, ICIS quadrupled its forecast for installed capacity by the end of 2024, resulting in 61.08GW by 2030.

Actual intended capacity may vary, and the government did not address enquiries that could help specify the exact date from which it intended to quadruple capacity.

ICIS Analytics calculated that, in auction rounds six and seven, offshore wind capacity needs to average 16.60GW per auction to obtain the capacity needed to reach the 2030 target.

Calculations show that if the auction cleared at a strike price of £60/MWh, the £1.1bn budget could finance 5.8GW of capacity. Similarly, if the auction cleared at its maximum strike price of £73/MWh, the budget would only be able to fund 4.3GW.

Given that only 10.6GW of offshore projects have development consent to proceed to auction, this puts increased pressure to secure further capacity on the seventh auction in 2025.

For now, ICIS Analytics forecasts only 39GW of offshore wind capacity will be built by 2030, under a base case scenario.

BOOST FOR ONSHORE WIND

The overall budget the CfD scheme is divided into three pots (see infographic) depending on the technology it supports. The budget for pot one, for established technologies like onshore wind, was increased from £120m to £185m as a result of the latest £530m injection.

 

 

The government has also removed a de-facto ban on onshore wind in England this month.

Additional policy tests previously meant that wind power planning applications had to go though additional hurdles compared to many other types of energy development proposals. The government also plans to consult on bringing onshore wind back into the nationally significant infrastructure projects regime, meaning decisions on large onshore wind projects would be made by the Secretary of State instead of local planning authorities. This could further speed up permitting.

ICIS analyst Robbie Jackson-Stroud previously stated that onshore wind is cheaper and quicker to build but has a thin pipeline of projects due to previous red tape.

“While there is more opportunity for the technology, it may take until the seventh auction round for onshore projects to be ready to bid in the CfD,” Jackson-Stroud said.

FLOATING OFFSHORE WIND

Pot two, which is for emerging technologies such as floating offshore wind, saw a funding increase from £105m to £270m. This should help the UK move closer to its target to deploy up to 5GW of floating offshore wind capacity by 2030, despite £15m being ringfenced support for tidal stream projects.

ICIS previously reported that the increase in maximum strike price to £176/MWh and budget of £105m for the sixth auction could make the round more attractive to developers and could procure more floating offshore wind capacity. In the fifth auction, there were no bids for floating offshore wind amid a low strike price of £116/MWh and a budget of only £37m for the pot.