Offshore wind projects prepare to battle for UK funding

24 March 2017 16:24 Source:ICIS

Up to 2GW of new offshore wind capacity could secure subsidy from the upcoming Contracts for Difference (CfD) auction in the UK, which begins on 3 April.

It will be the first such auction since February 2015, when around 2GW of renewable capacity won government subsidy to build out before the end of the 2020s (see EDEM 26 February 2015).

On this occasion, a total of £580m has been made available for projects that will deliver between 2021 and 2023.

Despite being open to a range of renewable technologies, it is expected that large offshore wind projects will dominate the bidding and secure most of the available money.

“It feels like it’s being targeted at offshore wind,” Chris Willow from wind energy consultancy BVG associates said.

No money has been made available for onshore wind and solar to compete, while strike prices set by the department for business, energy and industrial strategy (BEIS) are higher for other less established technologies.

These include new biomass, varying CHP forms, wave and tidal with any such projects needing to bid below £100/MWh to have a realistic chance of knocking offshore wind projects out of the running.

“We’re not talking about a vast pool of developers going forward [into the auction],” Willow said, adding that bids would likely be submitted by developers of the 900MW Triton Knoll, 1.8GW Hornsea two and 1.1GW Moray Firth offshore wind projects.

The CfD allows developers to secure a guaranteed return on investment based on the price they secure in the auction. Meanwhile, the government sets a reference price indexed to forward wholesale prices, with the quantity of successful capacity dependent on the difference between the government’s reference price and the clearing price at the auction.

With the reference price in the auction expected to be higher than initial predictions based on recent government data, the expected fall in clearing prices for offshore wind could lead to more money being available for capacity to secure contracts.

“A little while ago, we were thinking 1.2GW [might get funded], then we started to get more optimistic thinking around 1.5GW and now I’m seeing commentators talk about 2GW being put through,” Willow said.

This, however, is based on assumptions that all the money in the upcoming round is allocated to offshore wind, he added.

Such a quantity of capacity with low operational costs will likely depresses wholesale prices for 2021 to 2023. The current backwardation of the curve is partly explained by the scheduled commissioning of around another 5GW of offshore wind capacity by the end of this decade.

Applications for the latest auction need to be submitted by 21 April.

By Henry Evans