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The British government has increased the subsidies available to offshore wind developers by up to two-thirds to revive new projects in a sector struggling with rising costs.
The maximum price available in next year’s auction for state contracts to build offshore wind farms will be 66% higher than in the 2023 bidding round, the government said on Thursday.
The government also increased the price for floating offshore wind farms, a new technology, by 52 percent. The price increase came after developers avoided the last auction, arguing that the subsidies offered were far too low.
Claire Coutinho, the energy secretary, said ministers recognized that “global challenges” were affecting offshore wind and the new auction terms would help develop “homegrown clean energy”. The government will also raise the maximum price offered for other renewable technologies, including a 30 percent increase for solar farms.
The move has been welcomed by industry, but any increase in subsidy will ultimately be picked up by households who are still struggling with high energy bills.
Duncan Clark, head of the UK at Denmark’s Ørsted, the world’s largest wind developer, said: “This is a clear indication from government that offshore wind can and will be the backbone of our future energy mix.”
Keith Anderson, chief executive of Scottish Power, one of the UK’s largest wind farm operators, said the decision was “a welcome signal that the government (was) listening”.
Henrik Andersen, chief executive of wind turbine manufacturer Vestas Wind Systems, said the move was “an important first step towards restoring investor confidence and reactivating projects, which will most importantly help lower UK electricity prices.”
Developers of renewable energy projects compete for state support in annual auction rounds that offer 15-year contracts guaranteeing top-up from bill payers if the wholesale electricity price falls below a certain level, known as the strike price. If the wholesale price is higher than the strike price, the government wins back the difference.
These long-term contracts help reduce the upfront investment needed to build renewable generation capacity and have helped the UK develop the world’s second largest offshore wind industry, with almost 14GW in operation.
But the last auction round in September failed when not a single bid was submitted for an offshore wind project. Developers said the maximum strike price of £44 per MWh was too low to offset rising costs that have hit the industry worldwide in recent years.
Next year’s offshore contracts will have a maximum strike price of £73 per MWh. The subsidies are set in 2012 prices and index-linked, which means the maximum subsidy level is closer to £100 per MWh in today’s money, which is roughly equal to current wholesale prices.
For floating offshore wind farms, the price will be £176 per MWh, up from £116 per MWh. The technology involves placing turbines on floating platforms anchored to the seabed. It allows turbines to be placed in deeper water further out to sea where wind speeds are often higher. The technology is at an early stage, with only two pilot projects in the UK.
The maximum price for solar was set at £61 per MWh, up from £47 per MWh in the last round.
The UK government wants to increase UK offshore wind capacity almost fourfold to 50GW by 2030, requiring rapid development of projects.
The next auction round will take place next year, with results expected to be announced in September.