Record Low Prices for Offshore Wind

 

The UK’s Third Contracts for Difference (CfD) auction has cleared at a record low price. The results of the government’s latest CfD Round show record low prices of £39.60/MWh for the first delivery year (2023/24) and £41.611/MWh for the second delivery year (2024/25).

 

The Auction Round was dominated by offshore wind, representing 95% of the capacity awarded out of the 5.8GW of new capacity secured by the government. Out of the contracts secured: six were for offshore wind, four for remote islands wind and two were for advanced conversion technology projects. In effect, clearing prices have in this Auction Round achieved parity with the wholesale market, which provides valuable certainty over power prices in an evolving market.

 

The first CfD round, held in the summer of 2015, awarded contracts to 1.2GW of offshore wind projects at a price of £114-120/MWh. In just four years, the CfD mechanism has provided the necessary support to cut offshore wind costs by 65%. This is an incredible achievement for the sector and shows how cost-effective offshore wind energy production is compared to other sources of energy such as nuclear.

 

The competition witnessed in Allocation Round 3 also demonstrates the value investors put on revenue security and further opens offshore wind’s role in getting to net zero by 2050. The results show a dramatic cost reduction and development of scale in offshore wind and mean that the government has secured almost 6GW of energy without spending a penny of the £65 million budget made available for Round 3. Due to the fact that clearing prices were below the Reference Price, the auction was capacity constrained and in essence subsidy free.

 

There are a number of reasons for the rapid reduction in costs and these are mostly based on the increasing scale of projects. Larger turbines, larger blades, fewer turbines per wind farm and increasing efficiencies all contribute to reducing costs and improving economies of scale. A large commitment is led by the Dogger Bank zone, which accommodates two pioneering large-scale projects (Creyke Beck and Teeside) that have been developed much further out to sea.

 

The increasing scale of projects and rapid reduction in costs will lead to more UK jobs being developed as well as helping to further progress the government towards meeting the net zero emissions commitment by 2050. CfD is the government’s main mechanism for supporting low-carbon electricity generation and it has proven to be a highly successful vehicle in growing the offshore wind sector.