UK to Offer Record £800 Million Support for Offshore Wind

(Bloomberg) -- Britain will offer record support for new offshore wind farms in an upcoming auction after the process failed to attract bidders for the technology last year.

The government set a budget of just over £1 billion ($1.3 billion) for renewable energy with £800 million a year to support the next generation of offshore wind farms, according to a person familiar with the matter who asked not to be identified because the matter is private. The total is three times bigger than any previous support packages and will be announced in the UK budget later on Wednesday. 

The record amount is the latest sign that governments realize that they need to do more to support an industry they see as vital to help combat climate change. Offshore wind developers, including Orsted A/S, have struggled in recent years amid soaring interest rates and supply-chain snarls, resulting in canceled UK and US projects. 

Britain has led the world in subsidizing offshore wind to help the industry scale up and cut costs. The nation plans to triple capacity by the decade to help cut carbon emissions and increase energy security. But the target has come up against rising costs that may contribute to higher bills for consumers.

A Treasury spokesperson declined to comment. 

An increased auction budget is critical for major developers such as Orsted, Iberdrola SA and RWE AG that will be eligible to bid for capacity later this year. But it may be a highly competitive process, with more than 10 gigawatts of projects eligible, according to data from industry group Renewable UK. The budget could still be increased before the auction opens, depending on how many projects qualify to bid.

The numbers are an estimate of the total annual support that wind farms eligible for the country’s main subsidy mechanism, known as contracts for difference, will receive to allow them sell power at guaranteed prices. 

That increase comes after an auction last year failed to lure any bidders because the price to sell power offered by government was too low. The contracts guarantee that recipients will be able to sell electricity at fixed prices over a 15-year period. If the market price is below the contract price, then the operators receive a top up. But if the market price rises high enough, then the wind farms will pay money back to consumers. 

The budget is based on factors including the capacity the government expects to procure, what price wind farms will bid to sell power and what the wholesale price of power will be in the future. For the next auction, the maximum guaranteed price will be £73 ($91), up from £44 last year, not accounting for inflation.

UK Ramps Up Wind Farm Support to Revive Crisis-Hit Industry

(Updates with more context and chart.)

©2024 Bloomberg L.P.