The UK went through a bad period on offshore wind. But several good things have happened in the last two months which restore confidence. The UK now looks like it will remain Europe’s largest offshore wind market.
The UK has huge ambitions for offshore wind. They have 14.7 GW today which are producing 16% of their electricity. They want 50 GW by 2030.
But they’ve just gone through a period of policy mistakes which were undermining these ambitions. The projects that won the UK’s 4th round Contract for Difference auctions in 2021 (AR4) were very slow taking final investment decision and the 5th round (AR5) failed completely – not a single project bid in. Their problem in both cases was the combination of rising costs and the failure by the Government to fully index the auction prices.
However, the Government have now corrected their policy mistakes and things are looking up again. Crucially, the Government has raised the ceiling price for the sixth round of CfD auctions by 66%: from £44/MWh (including the cost of grid connection) to £73/MWh. This change should lead to successful CfD auction this year. At least ten projects will be eligible to participate in this year’s CfD auction. It could well deliver CfDs for as much as 10 GW of new capacity.
Only 2 of the 5 projects that won AR4 initially moved forward to final investment decision. They found it difficult because costs were going up but the Government wasn’t giving any flexibility on the CfD price or offering capital allowances which would have helped. One of the projects, Vattenfall’s Norfolk Boreas project, was put on hold. However:
- RWE and Vattenfall have now agreed for the former to take over the complete Norfolk Zone. This area contains three fully consented wind farms – Norfolk Boreas, Norfolk Vanguard West and Norfolk Vanguard East. The combined capacity of the three sites is 4.2 GW;
- Ørsted took FID late last year on the Hornsea 3 project. The world’s largest offshore wind farm will be commissioned in 2027. It will power 3.3m British households with its 2.6 GW of capacity. This project alone will support up to 5,000 jobs during its construction phase and 1,200 permanent ones.
Separately at the end of 2023 the UK and Denmark activated the world’s longest land and subsea undersea electricity cable linking the two power markets. The so-called Viking Link has a capacity of up to 800 MW right now. But this will be upgraded to 1.4 GW over the next few years. These big interconnectors allow operators to ensure the optimal consumption of renewable energy. Electricity can now flow to the market where it is most needed more easily. Interconnectors like this are going to be key to the expansion of offshore wind in the UK and other countries around the North Sea. And the UK plans more of them.
WindEurope CEO Giles Dickson said: “Things are looking up again on offshore wind in the UK. The Government have fully corrected the mistake not to index their auctions prices properly. Stalled projects are now going ahead. And we can look forward to a bumper auction this year. The UK should be congratulated also for the good progress they’re making on interconnectors to their neighbours in the North Seas.”