Government’s £800m offshore wind auction budget not enough, analysts warn

Despite a budget increase, the UK’s next round of auctions for offshore wind looks set to disappoint on power generation returns.

According to a statement from the Department of Energy Security and Net Zero today, the next auction for renewable energy (AR6) will have a budget of just over £1bn, of which £800m will be allocated to the offshore wind sector.

This marks a significant upgrade to the £227m offshore wind budget in the previous auction round, which attracted zero bidders.

Additionally, the government has increased the auction price ceiling for offshore wind to £73/MWh for AR6, up from £44/MWh in AR5, which is a more realistic reflection of costs.

Analysts from energy consultancy LCP Delta, however, expects the £800mn could likely procure between 4-6GW in the upcoming auction.

“This is certainly a welcome development given last year’s failed auction, however, it may not be enough to get the UK back on track with time running out to build the additional 23GW needed by 2030,” said Sam Hollister, who heads up the firm’s energy economics and finance team.

Zoe Stollard, a contracts partner at law firm Browne Jacobsen said while the increased budget was welcome, it has done nothing to assuage the multiple other headwinds being felt by the sector.

“We are seeing more and more tier 1 contractors forming partnerships / alliances / joint ventures in an attempt to combine forces to deal with capacity issues and combine their expertise on innovative major complex energy projects such as offshore wind,” she said.

Keith Anderson, chief executive of Scottish Power added that the money could be extended further, such is the fear of auction history repeating itself.

“I expect the auction to be hugely competitive given the scale of the available pipeline, there is the always the opportunity to go further and so we would encourage the government to revisit the budget in light of developments,” he said.

The announcement came quietly today amidst the fever of chancellor Jeremy Hunt’s Spring Budget, which included a few clean energy tidbits of its own.

Included among these were the government confirming it has bought back two sites for nuclear reactors no longer being built by Hitachi and an additional £120m in funding to be put towards the Green Industries Growth Accelerator fund, to be split across the energy sectors.