Summary
Following the previous announcement in July 2025[1], the Government announced on 27th October 2025 the budget for Allocation Round 7. Some key messages:
- The Allocation Round 7 (AR7) budget pot for bottom-fixed wind is less than anticipated, with only around 4.7 GW capacity predicted to be awarded contracts for difference (CfDs) if strike prices mimic those from 2024. This may signal a policy shift away from trying to deploy as much capacity as quickly as possible, to a more measured approach to limit levies on consumer bills.
- Floating offshore wind has a dedicated budget pot which could allow for several demonstrator-scale projects to be deployed, and make significant progress to proving out this emerging technology and reducing costs.
- A more limited budget may lead to more competition in the bidding process. The Secretary of State can then increase the budget to procure more capacity at a lower price than if the budget was fixed. However, we also want to avoid projects failing to reach financial close due to unfeasibly low clearing prices, so we should hope for steady realistic deployment, rather than stretched budgets and costs.
What does this mean for the industry going forward?
N.B. All £ figures stated in this article are in 2024 terms.
On the 27th October, the UK government announced the budget for the upcoming allocation round 7 (AR7). There are a couple of notable differences to the budget structure for offshore renewables from previous allocation rounds. The most significant, perhaps, is that the published AR7 budget is exclusively for offshore wind developments, with other offshore renewables such as tidal and wave energy bracketed with general emerging technologies in AR7a As such, the overall budget for offshore wind is initially looking to be £1.08 billion, separated in the following manner:
- Pot 3 (general offshore wind): £900 million
- Pot 4 (floating offshore wind): £180 million
In addition to this separation of budgets exclusively to offshore wind, there is the extra separation of floating offshore wind into its own budget pot. This is likely in response to the progress being made in floating offshore wind technology, and the understanding of the opportunity it presents to the UK.
In comparison to AR6, the budgets put forward for AR7 this week are slightly lower than might have been expected when put into the context of our Clean Power 2030 targets. The AR6 budget for offshore wind (Pot 3) was £1.53 billion (2024 terms), and translated to 3.36 GW of fixed bottom offshore wind developments awarded CfDs, at a clearing strike price of £82.60 /MWh. An additional 400 MW was also awarded to Greenvolt in AR6, for a floating wind project at a strike price of £195.90 /MWh.
If strike prices stagnate from AR6, the AR7 budget implies that approximately 4.7 GW of fixed offshore wind and 290 MW of floating wind projects could be awarded CfDs (if the entire budget is spent). If the strike prices end up closer to the maximum administrative strike price, 2.9 GW of fixed and 200 MW of floating will be eligible to clear CfDs. This means less than a quarter of the eligible offshore wind projects (up to 20 GW) and around half of the eligible floating projects (totalling 458 MW) are in line to be awarded revenue support.
With regards to 2030 offshore wind targets, these budgets mean that we are likely to miss the mark on 43 GW of deployed capacity. With similar budgets and procurements in successive allocation rounds it does however remain possible to have 43GW contracted but not fully deployed by the 2030 deadline. In an optimistic timeline, we modelled that at least 6.5 GW would need CfDs in AR7, 8 & 9 in order to reach such a deployed offshore wind capacity by 2030. In an aggressive deployment timeline, around 10 GW would need to be successful over the next two auction rounds. While the current AR7 budget clearly adds challenges to the role of offshore wind in helping reach Clean Power 2030, it should be noted that restrictions on this may have been in place regardless, due to grid and supply chain constraints that would, nevertheless, make deploying 43 GW a challenge.
There is however the chance that this limited budget will promote bidding by developers, and therefore the Government can secure more capacity at lower strike prices. This is a more risky strategy however, as we have already seen projects cancelled due to unmanageable cost expectations (Hornsea 4 in May 2025), and therefore securing realistic strike prices should be a priority if we are to progress offshore wind deployment.
The message we can take from size of this budget and the projected capacity is that the government is prioritising steady progress while wanting to minimise the impact on consumer bills. The anticipated strike prices will conservatively deliver 3-5 GW capacity of offshore wind, which continues progress, but not the huge leaps we have seen in the past. It is possible that some offshore wind projects will seek alternative routes to market, with developers holding large enough balance sheets taking on more merchant exposure.
The budget for floating wind is more promising, and is an indicator that the government is willing to use the CfD process to support maturing industries. If we see around 290 MW of floating projects awarded CfDs, that is over half the projects which are eligible to bid, and is an excellent step to getting demonstrator scale projects in the water and continuing down the cost reduction pathway.
References:
[1] https://cms.ore.catapult.org.uk/wp-content/uploads/2025/07/AR7-Parameters-Reaction-Blog.pdf