Price surge for offshore wind energy
The price households pay for electricity from new offshore wind farms could almost double after the government increased the subsidies on offer to reflect surging costs.
Offshore wind developers are to be offered contracts in an auction next year guaranteeing them a fixed price of as much as £73 per megawatt-hour (MWh), up from £37.35/MWh awarded to projects that won contracts last year.
The government is trying to revive the industry at the heart of its decarbonisation plans after its auction for new offshore wind projects this year with contract prices capped at £44/MWh failed to attract a single bidder. The industry has complained of soaring costs owing to supply-chain bottlenecks and higher commodity prices.
Developers of novel floating offshore wind projects are to be offered electricity prices of up to £176/MWh, almost twice as expensive as the contract agreed for the Hinkley Point C nuclear plant under construction in Somerset.
The government is chasing an ambitious target of 50 gigawatts of offshore wind by 2030, up from 14 gigawatts operational today and more than enough to power every home in Britain. It encourages new projects by offering developers contracts guaranteeing their revenues for 15 years.
When power prices in the wholesale market are below the contract price, consumers will pay subsidies to the wind farms, but when wholesale prices are higher the wind farms pay the difference back to consumers.
The contract prices are expressed in 2012 money and indexed to inflation, making the new maximum prices on offer much closer to prevailing wholesale prices of £100/MWh in today’s money.
Higher contract prices raise the likelihood that consumers will have to pay subsidies to the next batch of offshore wind projects, unlike projects in recent years that have undercut market prices.
Government and industry sources said the price was a maximum and that developers were expected to compete, resulting in lower-priced contracts. Last year the auction cap was set at £46/MWh but the five winning projects were awarded contracts at £37.35/MWh. One is proceeding but another has been scrapped due to the low price.
Claire Coutinho, the energy secretary, said the government recognised “global challenges in this sector” and the announcement was “a vital part of our plan to have enough homegrown clean energy, bringing bills down for families and strengthening our energy independence”.
