Offshore renewables developments in the UK took a positive step forward, as the Allocation Round 6 (AR6) results show that a total of 5.34GW capacity was successfully awarded across fixed-bottom offshore wind (OSW) and floating offshore wind (FOW), and 28MW of tidal stream (TS) projects.
The allocated budget and reference prices published prior to this allocation round clearly showed Government support for offshore renewables, and recognised the challenging cost environment that led to no bids in the AR5 auction. This lack of awarded capacity in AR5 put pressure on subsequent ARs to achieve near-term targets. With 2030 edging closer, the renewed commitment by the government and developers from AR6 goes some way to address this, but still leaves some catching up to do.
AR6 Key Outcomes:
- Uplifted pot budgets and reference prices, alongside nearly 10GW of eligible projects led to intense competition for fixed-bottom CfDs, resulting in a total capacity for fixed-bottom of 3.36GW awarded to new projects, with a further 1.57GW awarded to re-bid projects.
- The strike price of £58.87/MWh (2012 terms, equivalent to £82.16/MWh today) is 19% lower than the maximum permitted strike price, with some re-bids from AR4 also being successful at a strike price of £54.23/MWh (£75.68/MWh today).
- The 400MW capacity awarded to the GreenVolt FOW project makes it the largest floating project in the world, and if able to deliver at the low price of ~£140/MWh would be a crucial stepping stone to GW-scale projects.
- Tidal Stream also saw an additional 28MW capacity from successful projects, indicating the ringfencing of budget to this emerging technology is still worthwhile.
- 34GW awarded capacity for all OSW adds to the 2030 UK target of 60GW, but acceleration is still required for all types of offshore renewable projects if short term UK emissions are to be impacted, and future energy security is to be secured.
What made the difference from AR5?
Following the disappointment of AR5, where no offshore wind projects bid into the CfD auction, the Government response was to increase budget and strike prices for AR6. The OSW industry has suffered from inflation, high commodity prices and supply chain constraints and the new budget – as well as an increased administrative strike price – needed to better reflect the recent volatility for offshore renewable energy. In March, a budget of £1,025m for AR6 was announced (£800m for offshore wind), a significant increase to the budget from AR5, which had totalled £205m.
Whilst reaction to this increase was largely positive, there remained a sense that too much ground had been lost after AR5 and more needed to be done if the UK has any hope of reaching its target of 60GW of installed offshore wind capacity by 2030. After the recent change of government, speculation began to mount about whether the initial AR6 budget would be uplifted further. In late July, it was confirmed that the new AR6 budget would be:
- £1.1bn for OSW
- £270m for emerging technologies, such as FOW and TS
- £15m ringfenced specifically for TS
AR6 Results: Fixed Bottom Offshore Wind (OSW)
The results of AR6 for fixed bottom OSW see successful bids from Orsted and Iberdrola, with projects achieving a strike price of £58.87/MWh (2012 prices). These projects are set to deliver a total capacity of 3.36GW (Table 1) in 2028-2029, contributing to the 60GW installed capacity by 2030 set by the Government earlier this year.
In addition to these new projects, the successful re-bids from AR4 for the East Anglia Three (Iberdrola), Hornsea 3 (Orsted) and Inch Cape projects gives the developers financial security to take final investment decisions. This is a mechanism which allows developers to keep previous CfD awards for most of the project capacity and re-bid up to 25% capacity in future auctions to improve project viability.
Although the Hornsea 3 project is set to deliver ~300MW more capacity than originally planned, these re-bids push the commissioning date of the awarded projects out to 2027/2028. It is yet to be determined if this delay will have a knock-on effect to also push their competitors to commission projects later, and if this will impact the total OSW capacity targets.
Table 1 Comparison of eligible capacity vs awarded capacity for fixed bottom OSW from AR6
AR6 Results: Floating Offshore Wind (FOW)
There was a significant increase in maximum strike price for FOW from £116/MWh to £176/MWh (2012 prices), prior to the opening of AR6. As with all offshore renewables, there was an increased pot to play with going into the round, but with the expected increased strike price, the 400MW awarded capacity from AR6 is not altogether surprising. There were four projects eligible to bid but only GreenVolt was successful (Table 2).
The GreenVolt project dominated the auction, succeeding with a £139.93/MWh strike price bid for 400MW capacity (out of ~500MW total). This is good news from the commercialisation perspective of FOW, with this project providing a clearer path forward for large-scale projects. As FOW is predicted to have significant growth towards the latter half of the decade, the GreenVolt project would be a strong first mover, keeping the UK at the forefront of floating wind and providing a welcome boost to supply chain companies looking to grow in this sector.
However the £139.93/MWh bid is aggressively low – if the project can be constructed at this cost, then it is good news for the viability and competitiveness of floating wind. However, margins will likely be tight, which will put pressure on the supply chain. There is also a concentration risk. If the GreenVolt project does not progress, the ability to test different designs and locations is limited.
Table 2 Comparison of eligible capacity vs awarded capacity for FOW from AR6 results
AR6 Results: Tidal Stream (TS)
Although the tidal stream pot was uplifted going into AR6 (£15m up from £10m), this was still only anticipated to allow for 20MW awarded capacity. The high costs of delivery of tidal stream projects continues to require a high reference price from the Government, which effectively reduces how far the ringfenced budget for tidal stream will go. The results however show six successful projects with a combined total capacity of 28MW, at a strike price of £172/MWh.
The strong number of successful bids seen in AR6 sets the stage for further proving out the tidal stream technology, and validates the ringfencing of budget specifically for tidal stream in facilitating a variety of project technologies and locations in this sector.
Table 3: Successful tidal stream bidders
What do the outcomes mean for offshore renewable capacity?
The awarded capacity for new OSW projects totalled 3.37GW in AR6, with the strike price set at £58.87/MWh. Although the 10GW pipeline was ambitious for this AR, the fact that zero awards for OSW were made in AR5 meant there was always an expectation to deliver at the top end of the capacity budget, whilst balancing a competitive strike price. The AR6 result means that there is now even more pressure on future ARs to award more capacity. Over the next three years, there must be rapid consenting and large-scale deployments of OSW. Reaching 60GW by 2030 would require an average awarded capacity of 10.6GW delivered in the next three ARs, or parallel methods of additional deployment from novel initiatives such as megaprojects, (Figure 2).
In addition to OSW capacity, the recommendation of the Marine Energy Council is for a target of ~1GW installed capacity by 2035 for tidal stream in the UK. The projects awarded in the last two ARs secured ~94MW, and combined with the results of AR6 bring the total capacity to 122MW. There is an expectation that with continued ringfencing of allocation budget, as well as innovation leading to cost reductions within the industry, there will be around 200MW of capacity operating in the UK by 2030, and the awarded projects from AR6 gave a welcome boost to reaching this total.
This blog was written by Head of Analysis & Insights Tom Quinn and Analysis & Insights Manager Emily Rees.