UK government to increase offshore wind subsidies by 66%

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The British government has increased the subsidies available to offshore wind developers by up to two-thirds in an effort to revive new projects in a sector that is struggling with surging costs. 

The maximum price available in next year’s auction for state contracts to build offshore wind farms will be 66 per cent higher than in the 2023 bidding round, the government said on Thursday.

The decision to raise the price came after developers shunned the last auction, arguing that the subsidies on offer were far too low.

Claire Coutinho, the energy secretary, said ministers recognised that “global challenges” had affected offshore wind and the new auction terms would help develop “homegrown clean energy”. The government will also raise the maximum price on offer for other renewable technologies, including a 30 per cent uplift for solar farms.

The move was welcomed by industry but any increase in subsidy will ultimately be picked up by households, who are still struggling with high energy bills.

Duncan Clark, UK head at Denmark’s Ørsted, the world’s largest wind developer, said: “This is a clear indication from government that offshore wind can and will be the backbone of our future energy mix.”

Keith Anderson, chief executive of Scottish Power, one of the UK’s biggest wind farm operators, said the decision was a “welcome signal that the government [was] listening”.

Henrik Andersen, chief executive of wind turbine maker Vestas Wind Systems, said the move was an “important first step towards restoring investor confidence and getting projects back on track, which most importantly will help lower power prices in the UK.”

Developers of renewable power projects compete for state support in annual auction rounds, which offer 15-year contracts guaranteeing top-ups from bill payers if the wholesale electricity price falls below a certain level, known as the strike price. If the wholesale price is higher than the strike price, the government claws back the difference.

These long-term contracts help de-risk the upfront investment needed to build renewable generating capacity and have helped the UK develop the world’s second-largest offshore wind industry, with almost 14GW operational.

But the last auction round in September failed when not a single bid was submitted for an offshore wind project. Developers said the maximum strike price of £44 per MWh was too low to offset a surge in costs that have hit the industry globally in recent years.

Next year’s offshore contracts will have a maximum strike price of £73 per MWh. The subsidies are set in 2012 prices and index-linked, which means the maximum subsidy level is closer to £100 per MWh in today’s money, which is roughly on par with current wholesale prices.

The maximum price for solar has been set at £61 per MWh, up from £47 per MWh in the latest round.

The UK government wants to increase UK offshore wind capacity almost fourfold to 50GW by 2030, requiring rapid development of projects.

The next auction round is set to take place next year, with results expected to be announced in September.


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