Are the winds of change finally blowing for clean power?

Electricity in the UK is relatively expensive, for consumers and industry alike.

Both are painful politically. The government has pledged to lower household energy costs by up to £300 per year by 2030.

This is likely to be an issue in the next election. Our political consensus on thwarting climate change in the UK has been eroded, with some parties now opposed to green measures.

Despite pledges, bills remain high – something some parties blame on the cost of green subsidies, or “net zero madness” (ignoring the rapidly increasing impacts of climate change).

The government is changing how it funds greener and cleaner forms of power, shifting costs from energy bills to general taxation.

This is the backdrop to Allocation Round 7 (AR7), the UK’s latest auction using Contracts for Difference to commission more offshore wind.

I’ve picked out three great achievements, three surprises, and three potentially industry-changing elements from the results.

3 great achievements

A record result for offshore wind capacity

AR7 secured about 8.4GW of new capacity – a breakthrough in scale and enough to power 12 million homes (when it is windy, none when it isn’t).

This accomplishes about a quarter of the UK’s 2030 offshore wind target in one go – which it needed to do.

After previous failures – including 2023’s auction failing to attract any offshore wind bids at all – AR7 couldn’t afford to fall short.

Investment in UK industry

AR7 will unlock about £22 billion of private capital and support some 7,000 skilled jobs in the UK.

It’s important that this surge in investment, paid for by UK bill and taxpayers, will deliver industrial benefits for the country.

Good results for emerging technology

The achievement I find most exciting is that AR7 opened the door to floating offshore renewables – two relatively small projects at about 100MW each – which will enable deployment off the UK coast in ever deeper waters.

These projects will drive innovation and should lead to a whole new industry, potentially with the UK as its global epicentre.

3 surprises

Some elements were controversial

Perhaps less surprising to some, but a shock to others: the strike price at about £90 per megawatt-hour (MWh) in 2024 prices for fixed offshore wind was significantly higher than in previous auctions. Although, this is still reportedly competitive with costs for new gas and nuclear.

Positively, this does much to revitalise the industry from previous rounds that were less economical and therefore less attractive for suppliers – such as AR5 in 2023.

This price has proved contentious, however, as some argue it may feed directly into consumer and industry bills.

The extension from 15- to 20-year contracts was also contentious, as it may increase total, long-term costs to consumers.

Timelines are tight

Suppliers have voiced concern about the ambitious timelines set for AR7 – not least because of the potential for grid connection delays.

New projects depend on grid connections for successful operation to benefit the UK. But ongoing reform to the grid connection process could mean that project connection dates change.

This, supply chain vulnerabilities, and more all pose risks to timely delivery of the clean power to homes and factories.

Newer technologies are expensive

The premium for floating offshore is high – clearing at £216 per MWh in 2024 prices – due to its very early stage of deployment.

It’s hoped that these early demonstration projects will mitigate risks and reduce costs. This sort of prototyping to innovate is rare in UK infrastructure circles and is to be applauded.

3 potentially industry-changing elements

Contracts lock consumers into longer-term payments

Extending CfD contracts to 20 years allows more competitive financing and therefore lower bid prices.

This reduces costs for UK consumers in the short term. But it exposes them to long-term costs that might not match emerging industry trends.

The change effectively ‘brings forward’ some of the expected long-term savings from clean energy to speed up the transition. Time will tell if this was the right move.

The price increase was a needed reset

For AR7, the government significantly increased the upper limit for strike prices (the ‘administrative strike price’).

While contentious, this enabled a successful auction round.

It showed the process has restabilised after the price cap problems in AR5 (no bidders) and AR6 (not enough winners).

The risk is that it was an over-correction. Like the extended contracts, it could lead to consumers overpaying for electricity.

This auction had to strike a delicate balance. Again, time will tell if it managed.

A new technology enters the mainstream

Floating offshore wind has now entered mainstream procurement, albeit not yet at ‘industry scale’.

This could unlock large parts of the UK’s territorial waters – such as the very windy Celtic Sea, Atlantic Ocean, and waters around Northern Scotland – that are too deep for fixed-bottom offshore wind.

The potential benefits are huge: more total wind power, more consistent generation, and investment in coastal communities across the country.

The UK simply needs to build on the momentum.

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