The Government must ensure next year’s offshore wind auction does not repeat this year’s failures or it could jeopardize the UK’s green goals and jeopardize energy security, industry officials warned.
Ministers have set a target of ensuring companies build 50 gigawatts of offshore wind power by 2030, but Friday’s results showed that was not providing the incentive companies needed to invest.
The look now turns to next year and whether ministers will make changes to catch up on lost ground.
“We need to ensure that this next auction is seen as a success,” ScottishPower CEO Keith Anderson told the PA news agency.
The government needs to be bold and make AR6 bigger than it was originally likely to be
This year’s auction, known in the industry as Allocation Round Five (AR5), was widely criticized for failing to attract a single new offshore wind farm.
Mr Anderson said many projects that could have bid this year could be eligible for next year’s auction, but only if the government makes changes to the process.
“Therefore, the government has to be bold and make AR6 bigger than it was originally likely to be,” he said.
“Because if you just do AR6 like a normal auction, there will end up being a lot of projects that don’t get a contract, and I think that creates a huge problem in terms of your 50 GW target.”
Mr Anderson said companies like his are “desperate to build wind farms” but the current economics are not right.
The government auction round sets a maximum price that companies can charge per megawatt hour (MWh) of electricity produced.
For offshore wind, that amount was £44 in this year’s auction. After developer prices skyrocketed, no one thought they could make ends meet at that price.
Energy policy cannot be based on wishful thinking about how the world is, you have to deal with the world as it is
Emma Pinchbeck, chief executive of trade association Energy UK, said the US and EU had created big incentives to attract green energy and absorb some of the investment that would otherwise flow to the UK.
“In a more competitive world, you cannot afford to have an auction that is unsuccessful because the money in the market can go elsewhere,” she told the PA.
“You can’t conduct energy policy based on wishful thinking about how the world is, you have to deal with the world as it is.”
“And everyone now wants a renewable energy industry. After the gas price shock, everyone is concerned about domestic energy security.
“We face a difficult global economic climate for the expansion of all infrastructure for all investments. If we are to remain world-class, our policies must reflect these realities.”
Mr Anderson said: “We did a fantastic job on that. We were world leaders in this. But everyone else is playing the same game. So we have to improve our game.”
Cracks in the offshore wind power market have been visible for some time, although the government has not changed the way it conducts the auctions, despite pleas from the industry.
If the UK doesn’t offer prices that give investors a return, they will simply invest elsewhere
Mr. Anderson said economists in the government were trying to push the price further to see how low it could go, missing how much the world had changed.
“It’s natural for an economist, but maybe there was too much textbook theory about economics and not enough actual reality,” he said.
The industry’s problems were highlighted in July when Swedish group Vattenfall paused one of its offshore wind farms that had been commissioned at last year’s auction.
On Friday, its UK boss Lisa Christie said: “However, the UK government can reduce the risks to developers by increasing the support offered in future… auction rounds to reflect the realities of the current market.” This would ensure the projects are financially sustainable while keeping prices stable for bill payers.”
Dan McGrail, chief executive of trade organization RenewableUK, said Friday’s results came as a huge blow to consumers.
“The industry has warned that increasing costs should be priced appropriately at this auction,” he said.
“If the UK doesn’t offer prices that give investors a return, they will simply invest elsewhere.
“These results should ring alarm bells for the government as the UK’s energy security and net zero targets can only be achieved if we have offshore wind as the backbone of our future energy system.”
https://www.standard.co.uk/business/business-news/government-must-deliver-much-bigger-offer-after-offshore-wind-auction-failure-b1105813.html After the failure of the offshore wind auction, the government “must make a much bigger offer”.