Zero bids in government’s net zero offshore wind power auction

Embarrassment all round. The government-subsidised renewable energy contracts auction fell flat today as no bids were made by developers to build new offshore wind farms, dealing a significant setback to the government’s environmental commitments.

Deals were made on solar, tidal, onshore wind, and the UK’s first geothermal energy project in the auction but rising costs and lower government subsidies meant that no developers made a bid on offshore wind.

The British government is committed to increasing the amount of energy the grid receives from offshore wind from the current 14 gigawatts (GW) at present to 50GW by 2030. Today’s grand total of 0GW is, as Reaction’s energy columnist, the aptly named Giga Watt, put it: “an unqualified disaster”. 

The annual auction lets private companies bid on contracts with the assurance that the government will pay them for the amount of energy the completed project produces for the grid. 

For those interested in the details, developers can claim subsidised contracts on projects up to 5GW in production capacity on an inflation-fixed price for 15 years at a maximum of £44 per megawatt hour (MWh) in 2012 prices. (It is just a rule that prices are measured in 2012 prices.)

Companies did not think £44 per MWh was enough to make offshore projects viable. Government subsidies were higher this year, by just under a fifth higher. But this was still too low it seems. 

Britain’s offshore wind industry is the second largest in the world behind China and, according to government figures it produced 13.8 per cent of the country’s electricity generation last year. 

After today, this figure will not increase dramatically any time soon. 

Critics say this outcome could have been avoided. For some time, industry leaders and private companies had warned the government that the low prices of its subsidies would result in few or no bids. Ana Musat, a director at the industry trade body Renewable UK, said she expected “very little” to happen at this year’s auction. 

In July, the Swedish renewables developer Vattenfall halted work on a huge wind farm project off the coast of Norfolk, citing rising costs of nearly 40 per cent. Even still, this huge project only accounted for 1.4GW. 

In August, the world’s largest offshore wind developer, Orsted, warned that the auction may prove unsuccessful. 

Nathalie Thomas in the FT also noted that the writing has been on the wall for some time. Costs were rising even before Russia’s invasion of Ukraine. Back in 2021, Danish turbine developer Vestas warned that exponential increases in raw materials and transport costs would make projects too costly without higher government subsidies.  

Reaction’s energy columnist Giga Watt described the government’s failure to increase subsidies as a “crowning moment of incompetence.” 

“The industry said this was going to happen and said why it was going to happen and yet the Energy Department did nothing. And it’s not a complicated problem to solve either – the price floor was too low and required an adjustment upwards to ensure that the developers could make a margin on these projects.”

Industry trade bodies and renewable energy companies have been lobbying for higher government subsidies, and their complaints will be even louder after today’s failed auction. 

Critics of the government’s net zero plan will disagree. Perhaps it shows that green technology is not without its problems. 

It is not just as easy as the government throwing more taxpayer cash at it, especially when there is so little spare cash available.

It is starting to become clear to both the public and private sectors how expensive the green energy transition will be.

The International Energy Agency, in 2021, estimated that in order to reach net zero by 2030 annual investment would have to rise to 2.5 per cent of global GDP, or $5tn.

Also in 2021, the UK’s Office for Budget Responsibility said that achieving net zero by 2050 would add a sum equivalent to 21 per cent of GDP to the national debt. This is not all from expensive investment, much of it is from lost fuel duty. 

Today’s botched auction showed that no one is comfortable footing the bill.

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