Falling technology costs and uncertainty will drive prices down, claims consultant

Next week’s contracts for difference (CfD) auction is going to be “very competitive” and could leave a lot of bidders disappointed, an energy consultancy has warned.

The chief executive of Cornwall, Gareth Miller, told Utility Week he believes the clearing price for offshore wind will be below what’s already been agreed for Hinkley Point C and “by quite some distance”.

Miller predicted the next round, which starts on 3 April, is going to be “a very competitive auction”.

“The combination of declining technology costs and the extent of competitive tension in the auction, and also the uncertainty about when the next auction will be will drive bidders to bid very aggressively, and I think that will result in very low prices for offshore wind as a result.”

Miller added that while the £290 million budget set for this round is capable of buying between 1.5GW and 2GW of offshore wind, it “will probably be oversubscribed by demand projects by at least four times”

“Even if the prices are lower for offshore wind, it’s still evident to us that the strike prices would be lower again for PV solar and onshore wind,” he claimed.

“The Government is still reticent to justify why they make budget decisions in the way they do. There is no auction for mature, established technologies this time round. All the money is going to less established, and that doesn’t seem to me consistent with the value for money agenda.”

Miller added that falling prices may also signal that “the world of technology neutral auctions is much closer than we otherwise thought”.

“If offshore strike prices are coming down to the levels we think they might, they start to get into the ballpark of established technologies,” said Miller.

“You then end up with a significant portion of the technologies out there, more or less, in the same ballpark on price. The idea of a technology neutral auction was once a twinkle in the eye of the government and something that might happen in the 2020s. Actually, we might be a bit closer to that than we thought.”

The government has previously indicated it plans to hold three CfD auctions during this parliament, with a total budget of up to £730 million, but no future dates have been set.

“It also signals how much budget might be required during the 2020s to support the 10GW offshore wind ambition that Amber Rudd spoke about back in 2015,” commented Miller. 

“If you look at the prices that we are getting in this round and how much is being bought by £290 million, and you roll that forward you can come up with a ballpark figure of how much might be required to buy that 10GW.

“We think it’s about £1.3 billion to £1.4 billion in money, including the £730 million that will be allocated in this Parliament.

“If you think about the £730 million that’s been earmarked for the three auctions, that could buy you between 5.5 and 6GW of offshore wind, but if you look at the pipeline, there’s way more than that out there. There will be lots of people who will be disappointed in this upcoming auction.”

What to read next