Yahoo Finance UK subsidies for offshore windfarms likely to increase amid rising costs
The government is poised to offer higher subsidies for new offshore windfarms to avoid missing its green energy targets as developers grapple with a rise in supply chain costs.
Ministers are expected to set out within the next week a new starting price for the next subsidy auction, which is likely to offer higher levels of support to offshore wind developers.
The new auction ceiling, which is expected to be set out on Thursday, follows weeks of crisis talks between the offshore wind industry and Whitehall officials over the sector’s rising costs.
Offshore wind developers are struggling to move ahead with new projects, after costs in the sector soared by about 40% because of inflation across their supply chains and higher interest rates.
Concerns reached a peak after none of the companies hoping to build offshore windfarms in the UK took part in the government’s most recent annual clean energy auction, having repeatedly said that the maximum price the state would pay for electricity was set too low to make the projects economically viable.
Related: What went wrong at UK government’s offshore wind auction?
One industry source said: “Government officials have been really engaged with the industry since the failed auction to make sure that fiasco doesn’t happen again. They’ve really been listening.”
That auction was described as “an energy security disaster” by the Labour party, which said that the UK could miss out on billions in investment and face higher energy bills if it derails the UK’s plan to triple Britain’s offshore wind power capacity by 2030.
The industry has called on the government to lift the starting price for the auction, which awards contracts to generate renewable electricity for 15 years at a set price based on the lowest bid. There have also been calls for contracts to be longer, which would allow for a lower price.
The government started its failed auction at a price of £44 per megawatt-hour after the previous round of bidding led to record low contract prices of just over £37/MWh. Officials are preparing to announce a new starting price of between £70 and £75/MWh to reflect the industry’s higher costs, according to a report by Bloomberg.
“These figures seem speculative. We won’t be sure what the government is going to do until the plans are announced next week,” a second industry source said. “We expect to hear more on Thursday, but there is so much going on in the government that we can’t even be sure of that.”
Rising costs have triggered concerns for the global offshore wind industry. Earlier this month, the Danish wind company Ørsted cancelled two major projects off the New Jersey coast in the US. Sweden’s Vattenfall has also scrapped plans for a huge offshore windfarm off the UK’s Norfolk coast because rising costs meant it was no longer profitable.
A spokesperson for the government said its clean energy auctions were “a UK success story” and it was “committed to a successful next auction round that includes offshore wind”.
