Auction spells end of subsidies for UK offshore wind

By Mathew Carr and Jeremy Hodges

An auction this year designed to encourage more renewable energy in Britain will probably for the first time see a winning price for offshore wind at wholesale rates, according to a fund manager at Investec.

Under Britain’s contracts for difference (CFD) programme, generators get paid a fixed price, measured as the difference between the strike and a market reference. If the wholesale rate is at a higher level than the contract, generators pay the difference back, lowering costs for consumers.

Contracts in the UK forward market, which sets the price of electricity many months into the future, range from about £33 a megawatt-hour to about £52. The level of incentives needed is dropping after technology costs have plunged.

The strike level will probably be “highly competitive with the wholesale price, as next generation multi-megawatt turbines are likely to be used which will significantly reduce costs,” said Deirdre Cooper, who helps oversee clean investments at Investec’s asset management division.

The next auction, which could start as this month, will see CFD subsidies capped at £65m to help pay for new renewable projects for delivery in the three years through 2025.

In the most recent contest in 2017, the lowest guaranteed price for offshore wind was £57.50 a megawatt-hour, half the rate achieved in the previous auction in 2015.

That number looks set to fall further when contracts are awarded later this year.

- Bloomberg