The latest Contracts for Difference auction has seen a number of renewable projects secure agreements at below forecast wholesale prices.
A total of 12 projects won contracts – seven starting in 2023/24 at a strike price of £39.65/MWh and five starting in 2024/25 at a price of £41.61/MWh.
They consist of six offshore windfarms, four onshore windfarms on remote Scottish islands and two bioenergy projects, which will together provide almost 5.8GW of capacity.
The strike prices are around £10/MWh below the government’s forecasts for wholesale market prices for intermittent and baseload generation over the early years of the agreements.
The contracts will give generators a guaranteed price for the electricity they produce over a period of 15 years. They will be paid or pay back the difference between their strike price and the reference price.
Auctions results
Reference prices
Prime minister Boris Johnson said: “The UK is leading the way in the fight against climate change, and it’s great news that millions more homes will be powered by clean energy at record low prices.
“Seizing the opportunities of clean energy not only helps to protect our planet, but will also back businesses and boost jobs across the UK.”
Energy and clean growth minister Kwasi Kwarteng said: “Offshore wind is a British success story, with new projects at record low prices creating new opportunities for jobs and economic growth as we leave the EU.
“The support we’re announcing today will mean that over 7 million more homes will be powered by renewable energy as we decarbonise our energy system – crucial as we continue on the road to net zero emissions by 2050.”
Further reaction
Hugh McNeal, RenewableUK’s chief executive said: “Securing this record amount of new renewable energy capacity in this auction is the biggest single step that the UK has taken towards meeting our net zero emissions target. As these results show, offshore wind is the key technology for this country in tackling the climate emergency. Offshore wind will be the backbone of the UK’s clean, modern energy system and will supply at least a third of our power by 2030.”
He added: “We have to use every tool in the box to hit net zero emissions and so we are also urging the government to support onshore wind, as well as innovative renewable technologies like tidal and floating offshore wind.”
Lawrence Slade, chief executive, Energy UK, said: “Today’s exceptionally low results are tremendously exciting, on a day of global climate action, and shows just what can be done right now. The cost of clean energy is continuing to fall, and the move to a low carbon future is being delivered at the lowest cost to consumers.
“This shows what can be achieved by providing the necessary certainty for investment, which drives down the cost of decarbonisation, benefits customers and the wider economy, and creates highly skilled jobs and stimulates growth in rural economies.
“The industry has shown it can deliver – with over a third of electricity generation now provided by renewables. We now need the government to set out a long-term policy framework to deliver on the newly legislated target of net-zero emissions at 2050.”
Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, said: “At just a third of the price of contracts signed just four years ago, these latest deals highlight how renewables are blowing the competition out of the water.
“Signing deals at rock-bottom prices mean that low-cost, low-carbon electricity is being locked in for the future, easing household budgets and ensuring that costs faced by British businesses fall.
“In fact, costs have now fallen so rapidly that it is a government-imposed cap that is limiting the amount of capacity installed. Every passing auction shocks onlookers with record low costs. Now questions may start to be asked if waiting two years between auctions is in the best interest of British homes and businesses.”
Among the winners was Innogy’s 1.4GW Sofia offshore windfarm at Dogger Bank in the North Sea. Hans Bünting, chief operating officer for renewables at Innogy, said: “We are delighted to have won a CfD for Sofia, the largest project in our offshore wind portfolio.
“I want to congratulate the whole Sofia team for working tirelessly to achieve a price that reflects the offshore wind sector’s enormous cost reduction efforts over the past few years and its focus on ensuring the maximum benefit for UK consumers.
“The sector has targeted innovation, competition and skills to bring costs down, and at the same time the UK government’s supportive frameworks and instruments have boosted investor confidence and given both scale and certainty to the UK supply chain.”
Innogy director for offshore wind Paul Cowling said: “The sector’s foresight has enabled the UK to take the lead globally in the deployment of offshore wind, with this auction confirming that costs are now down to a level well below that of fossil fuel generated electricity.”
SSE Renewables won a total of four offshore wind contracts – one for the first phase of its Seagreen project in the Firth of Forth and three for various phases of its Dogger Bank project in the North Sea.
Its managing director, Jim Smith, said: “These are by far the largest volume of low-carbon contracts awarded in this CfD auction round and the biggest ever secured by SSE Renewables, confirming the company’s position as the leading developer and operator of renewable energy across the UK and Ireland.
He continued: “Achieved at record low prices with no additional cost to the consumer above forecast wholesale prices, these contract awards demonstrate the value for money that new renewable generation, and these projects in particular, represent to UK energy customers.
“Looking beyond this allocation round, we believe the UK government must raise its ambition above 30GW of offshore wind by 2030,” Smith added. “Only by doing so can the country set itself on the right path towards future carbon budgets and meeting the challenge set by government to achieve net zero emissions by 2050.”