Offshore wind price hits record low in renewables auction

The UK government has announced 11 gigawatts of winning bids for various renewable technologies at a record-low price, securing a record amount of renewable power in its flagship auction scheme.

The auction process has secured almost the same amount of green energy as the previous three rounds combined, which amounts to 14 per cent of the UK’s total current electricity capacity and is enough to power around 12 million homes, according to officials.

Almost two-thirds of the auction were awarded to offshore wind, as five projects secured 7GW of new capacity. At £37.35 per megawatt-hour, it is the lowest cost of all renewable technologies and significantly cheaper than the current cost of electricity, which has been trading at over £150/MWh for much of this year. The previous record low had been £39.65, set in 2019.

Overall, the record low prices will save consumers an estimated £58 a year compared to the cost of power generated from gas, according to trade body RenewableUK. 

“Eye-watering gas prices are hitting consumers across Europe," said Business and Energy Secretary Kwasi Kwarteng. “The more cheap, clean power we generate within our own borders, the better protected we will be from volatile gas prices that are pushing up bills.”

The so-called 'Contracts for Difference' (CfD) auction sets a guaranteed price that each project will be paid for every megawatt-hour (MWh) of energy it produces. If the price of electricity on the open market is lower than that, subsidies will kick in to top up payments to companies. However, if the price is higher – as at the moment – companies will have to pay back the difference.

Over recent years, the price of renewable energy has fallen by nearly 70 per cent since the first CfD auction was run in 2015. In contrast, the price of gas has soared, which has been trading above £150 per MWh, meaning many wind farms are returning cash to customers.

“Renewables are like the Swiss Army knife of energy and climate solutions, so it’s great news for the planet and bill payers that the biggest-ever set of contracts have been awarded," said Dr Doug Parr, Greenpeace UK’s chief scientist. 

“The answer to domestic energy security, slashing climate-wrecking emissions and bringing down soaring bills, is enabling investment in renewables and energy efficiency every time. So the government must create a flexible grid and shift regulation to make cheaper, cleaner and more reliable renewables the backbone of our energy system.”

For the first time, the auction included tidal stream technology, with 41MW set to be built, and floating offshore wind turbines, which will provide 32MW of capacity. These more innovative technologies will be much more expensive, with tidal wind contracts at £178.54 per MWh and floating offshore wind at £87.30.

Orsted, Iberdrola’s Scottish Power unit, Vattenfall AB and a project including AB Ignitis Grupe, EDP Renovaveis and Engie were among the winners of the auction. 

Some of the largest projects in the auction round include a massive 2.9GW site to be built by Denmark’s Orsted off the east coast of England and a new wind farm that Sweden’s Vattenfall will develop off the coast of East Anglia.

“This auction firmly places the UK as a superpower of renewable energy, accelerates the delivery of our climate targets and reduces our reliance on expensive, imported gas,” said Danielle Lane, Vattenfall’s UK country manager. 

It is expected that billpayers will start to feel the benefits of the auction next year, receiving some relief from the record-breaking high energy costs brought forth by the cost-of-living crisis and the war in Ukraine. 

The auction is part of the government's goal to reach 50GW of offshore wind by the end of the decade, helping to power its target of ensuring that 95 per cent of electricity is from low-carbon sources.