he Government must ensure that next year’s offshore wind auction does not repeat the failures of this year, or it could jeopardise the UK’s green targets and risk energy security, industry figures have warned.
Ministers have set a target to ensure that businesses build 50 gigawatts of offshore wind power by 2030, but Friday’s results showed it was not providing the incentives firms needed to invest.
Eyes are now turned to next year and whether ministers will make changes to make up lost ground.
“We need to make sure that this next auction is seen as being a success,” ScottishPower chief executive Keith Anderson told the PA news agency.
The Government is going to have to be bold, and going to have to make AR6 bigger than it was probably originally intended to be
This year’s auction, known in the industry as allocation round five (AR5), has been widely criticised for failing to attract a single new offshore wind farm.
Mr Anderson said many projects which could have bid this year could be lined up for next year’s auction, but only if the Government makes changes to the process.
“Therefore, the Government is going to have to be bold, and going to have to make AR6 bigger than it was probably originally intended to be,” he said.
“Because if you just run AR6 like a normal auction, you’re going to end up seeing lots of projects fail to win a contract, and I think that starts to create a massive issue, in terms of your 50 gigawatt target.”
Mr Anderson said companies like his are “desperate to build” the wind farms but current economics do not add up.
The Government’s auction round sets a maximum price companies are allowed to charge per megawatt hour (MWh) of electricity they produce.
For offshore wind that figure was £44 in this year’s auction. After prices for developers soared, none thought they could make ends meet at that price.
You can’t do energy policy on wishful thinking about the way the world is, you have to deal with the world as it is
Emma Pinchbeck, chief executive of trade body Energy UK, said the US and the EU have put in place big incentives to attract green energy, taking some of the investment which would otherwise come to the UK.
“In a world of more competition, you can’t afford to have an auction that’s not delivering because the money in the market can go somewhere else,” she told PA.
“You can’t do energy policy on wishful thinking about the way the world is, you have to deal with the world as it is.
“And everyone wants a renewables industry now. Everyone is facing worries about domestic energy security after the gas price shock.
“We are facing a difficult global economic climate for all infrastructure build out for all investments. If we want to stay world class, our policy needs to reflect those realities.”
Mr Anderson said: “We have been fantastic at this. We’ve been world leaders at doing this. But everybody else is playing the same game. So we need to up our game.”
The cracks in the offshore wind market have been showing for some time, although the Government did not change the way it ran the auctions, despite pleas from the industry.
If the UK isn’t offering prices that allow investors to make a return, they will simply invest elsewhere
Mr Anderson said economists in the Government were trying to keep pushing the price down to find out how low they could go, and missed how much the world had changed.
“That’s a natural thing for an economist to want to do, but perhaps there was too much textbook theory about economics, but not enough actual reality,” he said.
Problems for the industry became clear in July when Sweden’s Vattenfall paused one of its offshore wind sites which had been commissioned in last year’s auction.
On Friday its UK boss, Lisa Christie, said: “The UK Government can reduce the risks for developers, however, by increasing the support offered in future… auction rounds to reflect the realities of the current market. This would ensure projects are financially sustainable while keeping prices stable for bill payers.”
Dan McGrail, the boss of trade body RenewableUK, said Friday’s results are a major blow for consumers.
“Industry has warned that rising costs should have been properly priced into this auction,” he said.
“If the UK isn’t offering prices that allow investors to make a return, they will simply invest elsewhere.
“These results should set alarm bells ringing in Government, as the UK’s energy security and net zero goals can only be met if we have offshore wind as the backbone of our future energy system.”