Labour’s upcoming AR7 renewable energy auction risks locking in higher energy costs for decades, as political support for net zero falters and public resistance to green subsidies grows, says Maurice Cousins
Today applications open for the government’s latest renewable energy auction, Allocation Round 7 (AR7). In Whitehall, it is just another technocratic acronym. But for Ed Miliband and the climate lobby, this auction is make-or-break. Energy UK, the industry’s main trade body, has called AR7 “critical” to delivering Labour’s pledge of a clean power system by 2030. Offshore Energies UK says it must be the largest round of investment yet “to keep the dream alive”.
And what a costly dream it is becoming.
In a bid to entice developers, Labour has quietly raised the maximum price it is prepared to guarantee for offshore wind. These so-called Contracts for Difference (CfDs) are meant to provide investor certainty and keep costs down. In reality, they are fast becoming a blank cheque drawn on the wallets of British households and businesses.
To further sweeten the pot, Miliband has extended the length of the contracts from 15 to 20 years.
This giddy response from ministers reveals just how fragile the subsidy model for intermittent energy has become
This giddy response from ministers reveals just how fragile the subsidy model for intermittent energy has become. Projects procured in AR4 are facing pressure from inflation, supply bottlenecks and higher interest rates. No offshore wind projects were secured at all in AR5. Even AR6 fell short of the volumes needed to meet decarbonisation targets.
Renewables UK now insists it is “critical” that Britain sends a clear signal that it remains a reliable and investor-friendly market.
But investors would be wise to look past ministerial assurances and the empty slogans of the Green Blob. The real risk lies in what the country thinks. Ultimately, politics is downstream from public opinion.
The end of the net zero consensus
The era of political stability and cross-party net zero consensus is coming to an end. Yes, voters care about the environment – but consent for net zero is weakening as the public wakes up to the true cost of the transition. Many now question the point of Britain leading the charge when we account for less than one per cent of global emissions, while China, India and the United States continue to expand theirs. Understandably, awareness of trade-offs is rising. The political risks are growing by the day.
This Labour government was elected on one of the lowest vote shares of any post-war majority. Its mandate, such as it was, came from a country that expected it to grow the economy and fix the cost of living crisis – not to sign 20-year power contracts at elevated prices, locking in higher bills for years to come.
Labour’s mandate, such as it was, came from a country that expected it to grow the economy and fix the cost of living crisis – not to sign 20-year power contracts at elevated prices, locking in higher bills for years to come
July 2024 polling by Yougov found that half of Britons believed Labour would make a noticeable difference to the cost of living in its first two years. Among Labour voters, that figure rose to 73 per cent. But progress has been elusive. In a separate poll by Public First, when voters were asked which of Labour’s election pledges Keir Starmer had made progress on, the most popular answer – by far – was “none of the above.”
Intermittent and expensive energy is central to this malaise. Britain still has some of the highest prices in the developed world. This situation is hurting industry, suppressing productivity and fuelling household insecurity. The OBR warns energy inflation is driving up welfare and debt costs, and that net zero policies pose a growing long-term threat to the public finances.
Even within the cabinet, the alarm bells are ringing. According to an official readout from a recent meeting, deputy prime minister Angela Rayner warned that “economic insecurity, the rapid pace of de-industrialisation, immigration and declining trust in institutions” are fuelling unrest. She added that many now believe the government is no longer “acting on their behalf and in their interests.” That same discontent is beginning to shape the politics of net zero.
Former energy secretary Claire Coutinho has accused Miliband of overpromising on bills. Reform UK’s Richard Tice has gone further – writing to AR7 developers and investors to warn them off, stating plainly that their contracts may not be safe. In a subsequent interview with Talk TV, he has made it clear he is not bluffing.
Opposition is growing beyond Westminster too. Reform-run councils have also started the process of abandoning their net zero pledges. And in Scotland, more than 50 Highland community councils – representing over 70,000 residents – have demanded a summit with ministers to address what they call a “green energy Wild West”. They see a flood of large-scale renewables projects being imposed on rural areas without local consent. That pushback will only grow.
Investors may believe CfDs are ironclad. They should think again. Nothing is permanent. As the Greek philosopher Heraclitus put it, “the only constant is change”.
Today, we live in an age of political shocks. Established orthodoxies are collapsing all around us. Brexit was unthinkable until it wasn’t. So was Trump. The lesson is simple: politics is not linear and nothing is guaranteed to endure. This is especially true for long-term subsidy regimes built on yesterday’s consensus. A future government, whether led by Reform or simply more in touch with public sentiment, may have little choice but to intervene in a cost of living emergency.
Given the state of the public finances, that intervention may come through clawbacks, windfall taxes, caps or contract renegotiations. Indeed, as Nigel Farage recently warned, green energy investors should prepare for “some haircuts”.
The red lights on the UK’s net zero dashboard are flashing. The risk is not that Clean Power 2030 will fail. The risk is that it will succeed on terms the public never consented to and cannot afford. Investors would do well to take note and stay away from AR7.
Maurice Cousins is campaign director at Net Zero Watch