AR6 budget increase could add 1 GW of offshore wind capacity

The recently announced budget increase for the upcoming Renewable Energy Auction under Allocation Round 6 (AR6) could deliver over 1 GW of additional offshore wind capacity.

An additional £300 million for offshore wind added to the sixth round of allocations under the UK’s Contracts for Difference (CfD) funding mechanism could deliver 1.16GW more offshore wind capacity than originally expected, analysis by the Offshore Renewable Energy (ORE) Catapult has found.

Tom Quinn, head of analytics and insights at ORE Catapult, highlighted that the funding budget could enable thousands of megawatts of energy to be generated from offshore wind and tidal projects.

He said: “If the entire budget is used for projects bidding at the maximum strike price then we could see 4.2GW of fixed wind, 362MW of variable wind and 20MW of tidal stream projects securing CfD contracts.”

The potential increase in capacity depends on what price renewable energy developers propose. He explained: “The full impact of this announcement will only become clear once we see what price developers propose.

“The lower bid means more capacity is needed to ‘squeeze’ the budget. In the most likely scenario, this will result in 1.1-1.5GW more offshore wind, 200-250MW more floating wind and around 7MW more tidal current.”

Analysts from Aurora Energy Research predict that the “unprecedented support” in the form of an increased budget could increase the volume of acquired offshore wind capacity by up to 1.6 GW, for a total of 5.8 GW, assuming an auction clearing price of GBP 60/MWh.

It should also address the fact that the previous round of funding did not attract any offshore wind projects.

Aurora Energy Research senior research analyst Tom Betts said: “This unprecedented support, combined with the increase in administrative strike prices, means this year’s auction is likely to be significantly more competitive than last year’s AR5 auction, which failed to attract any offshore wind bidders.”

At the same time, he reassured those who fear that increasing the budget will result in higher energy prices for consumers.

“The CfD funds are recovered through consumer electricity bills, but the impact will not be incremental as additional wind power will put downward pressure on wholesale prices, assuming all other factors remain unchanged,” he said.

Meanwhile, LCP Delta predicts that the amount of offshore wind power procured at auction could increase by 5.5-9 GW “depending on clearing prices”.

Increased funding

The UK Government has announced that it will increase the budget for the AR6 programme by £500 million over the funding previously set by the Conservative Government, to £1.5 billion.

This includes an additional £300 million for Pool 3, covering offshore wind, taking the total budget to £1.1 billion.

The decision was welcomed by industry representatives, who said it was a signal of Labour’s commitment to the climate agenda and renewable energy targets.

ScottishPower CEO Keith Anderson said: “The auction needed a reboot after last year and we welcome the increased budget, which sends a powerful signal of investment to the industry that will help make the UK a clean energy superpower, secure more affordable offshore wind and boost economic growth.

“This will unlock billions of dollars in private investment, create thousands of jobs, strengthen our energy security and produce the green, affordable energy we need for decades to come.”

© Provided by Anna Horne

The previous Conservative Government also increased the strike price available for offshore wind from £44/MWh to £73/MWh and by 52% for floating offshore wind projects from £116/MWh to £176/MWh.

The AR5 project did not attract any bids from offshore wind developers because the price cap was deemed too low to ensure adequate project financing.

The total AR6 budget is now seven times higher than last year’s unsuccessful AR5 auction, representing the highest amount of funding offered under the Contracts for Difference (CfD) programme.

Other pots

Proven technologies such as onshore wind and solar farms that compete in Pool 1 will receive £185 million, an increase of £65 million.

Andrew Coull, director of green and renewable energy technologies at Gneiss Energy, said: “More money for Pot 1 underlines the new government’s commitment to approving large-scale solar and onshore wind in England.”

Meanwhile, Band 2, which covers new technologies including floating offshore wind farms, geothermal and tidal energy, will receive £270m, an increase of £165m, with £15m earmarked for tidal projects, up from £10m.

According to ORE Catapult’s analysis, this could increase Pool 2’s power allocation by 234 MW, of which 227 MW would come from floating power plants and the rest from tides.

Mr Coull said: “The increase of £165m (157%) for emerging technologies in Pool 2 is likely to send a stronger signal about the government’s wider ambition for renewable energy technologies, providing greater support for emerging sectors including floating offshore wind, wave and tidal, advanced conversion technologies, anaerobic digestion, dedicated biomass with cogeneration and geothermal energy.”

© Provided by Gneiss Energy

Labour Party ambitions

The increase in budget available in AR6 aims to deliver Labour’s ambition to quadruple offshore wind capacity by 2030.

But despite the funding boost, analysts remained sceptical about Labour’s ability to deliver on its election promises to double onshore wind capacity, triple solar capacity and quadruple offshore wind capacity.

Quinn of ORE Catapult noted: “With over 10GW of offshore/floating wind eligible for bidding in AR6, we are likely to see some fierce competition in the auction. This will be a welcome change from AR5, which failed to attract any bids for offshore wind.

“Announcements of an increase in the administrative (maximum) strike price in March 2024 and this budget increase should result in many GWs being awarded. However, the sector still has some catching up to do to meet targets.”

Additionally, Betts of Aurora Energy Research said: “While this Budget will accelerate the deployment of renewables in the coming years, it is unlikely to fully deliver on Labour’s ambitious manifesto commitment to double onshore wind capacity, triple solar capacity and quadruple offshore wind capacity by 2030.”

And LCP Delta’s head of economics, policy and investment, Sam Hollister, added: “The UK currently has 14GW of offshore wind capacity on the system, with a further 13GW of CfD capacity already in development. If the UK is to meet its target of 55GW by 2030, this year’s CfD auction must target at least 9GW, with the hope of securing additional allocations over the next two years.

“The government may hope that broad energy policy measures will encourage additional projects by increasing liquidity in AR7 and AR8, which could result in the purchase of further capacity, but at lower prices.”