Yesterday (6th March), the parameters for Contract for Difference Allocation Round 6 (AR6) were published. We have analysed the details along with our view on eligible projects to understand what this means for offshore renewable energy deployment in the UK against the 2030 targets.
The UK government has set a target of 50GW of offshore wind deployment by 2030, including 5GW of floating wind. Longer-term, legally binding Net Zero targets by 2050 will likely require over 100GW of offshore wind to be deployed. In order to meet these targets and maximise the economic opportunity available, the Contract for Differences (CfD) auctions up to the end of this decade are critical.
The budget for offshore wind in AR6 has been initially set at £800m. This is a very big uplift on previous rounds and goes some way to achieving the level of ambition required. However, the industry has been hit with inflation, high commodity prices, and supply chain constraints, which has resulted in an increase in the maximum strike prices (ASP) set by government. While this increase was generally received favourably by industry, it means the budget for each AR is used up more quickly, effectively buying less capacity for every pound.
If developers bid at the ASP, then with the current budget, a maximum of 3.1GW could be awarded. This is far short of what is required to catch up on the lack of capacity awarded in AR5 and to meet 2030 targets. If this does turn out to be the total volume to clear in AR6, then it will put more pressure on future rounds to deliver.
This delay in significant capacity has knock-on impacts which need to be considered. Electricity demand which could have been met with offshore wind will likely be produced by gas-fired power stations, increasing UK emissions. Supply chains require a steady pipeline of contracts to have the confidence to invest. This, combined with the delay in project spending, means there is a lost opportunity for enhanced UK content, economic benefit and job creation.
Floating wind will play an important role in meeting targets, but is a nascent technology which needs significant support to fully commercialise. The budget for AR6 is underwhelming, likely permitting only one of three eligible floating wind projects to win a CfD (a maximum of 135MW if bids coming in at the ASP). If the UK Government wants to achieve 2030 targets, that means needing to pay a premium for stepping-stone projects to deliver cost reduction through innovation and learning. Floating wind projects will also differ depending on which region they are installed, so it is important to test novel designs in a range of seabed and metocean conditions.
For the full analysis, you can read the report completed by Tom Quinn, Head of Analysis & Insights, and James Mantell, Analysis & Insights Manager, here.
