Questions over future contracts for difference (CfD) rounds could push prices in the current auction to the “lower end of expectations”, experts have warned.
The sealed bid window for the current round opens next week (14 August) and runs until 18 August.
Before the general election in June, the government had said it would hold a further two CFD auctions before 2020, but as yet, there is no news about when, or if, these will happen.
Participants are expected to be informed of the results of the auction on 11 September.
Jonathan Marshall, an energy analyst at the Energy and Climate Intelligence Unit (ECIU) told Utility Week the level of competition with the current CfD round is “quite high and the fact it has gone to a sealed bid obviously reflects that”.
Marshall said “everyone” is expecting a strike price of below £90 per MWh, but added it could get down to below £80.
“One of the main things pushing prices down is the fact there are no future auctions lined up,” said Marshall.
“If you have already started developing something, and done the planning and started to raise some finance on it, then it’s all or nothing on this auction.
“If you don’t win a contract at any cost, then you could have this asset on your books with no route to market. The indecision of the government to spell out future auction rounds could be one of the things, which pushes prices down to the lower end of expectations.”
He added he expects this round to be “almost entirely” offshore wind.
“Some of the offshore wind projects, which are expected to come in at the lower end – like Triton Knoll – could gobble up most of the subsidy on offer.”
Mike Blanch, an associate director at BVG Associates, said he believes prices “will come in well below” the strike price agreed for Hinkley Point C of £92.50 per MWh.
“We’ve seen some auction bids in Europe be extremely low, but then they are competing on a slightly different basis,” said Blanch.
“A recent Dutch auction came in at €54.5 Euros per MWh, which is about £46 but we will not get near that, because UK prices include transmission and development costs.”
Blanch added he expects this CfD round will be “dominated by offshore wind” and that low prices could raise questions about nuclear energy.
“The government could come back and increase demand for offshore wind,” he suggested. “They could say ‘we’re feeling very positive about offshore wind, can we have some more of it?’”
Earlier this week, Dong Energy confirmed its intention to submit a bid in the CfD auction for the Hornsea 2 project.