Last year, I wrote an article (issue 27) discussing the strengthening case for a rethink of the key pricing mechanism for the offshore wind market. This followed the failure of the August 2023 ‘Contracts for Difference’ (CfDs) auction round to attract any offshore bidders.

The UK Government and industry leaders put this poor result down to inflationary rises under the former Conservative Government making offshore wind farms uneconomically viable, even with the CfD – a contractual mechanism designed to incentivise investment in renewable energy projects at the least cost to the consumer.

Results from the most recent auction round, published on the 3 September 2024, show a very different story, however, with 9.6GW of green energy projects gaining state subsidy, nine of which were offshore wind farm bids, out of a record total 131 projects. These include the colossal 2400MW Hornsea 4 as well as the smaller, but still large, 1080MW Hornsea 3 projects, to be developed by the Danish energy company Orsted off the Yorkshire coast.

Tidal technology off the Scottish coast made up a small percentage of successful projects, as well as a considerable amount of solar in England and onshore wind projects across the UK. In Scotland, there were a number of successful onshore projects, such as SSE’s 130MW-capacity Cloiche Wind Farm, and Crystal Rig 4 in the Scottish Borders.

This prompts the question – why are bidders more forthcoming this time, and what has changed, economically and in the renewables markets, to facilitate this swift turnaround? Looking back to the state of the UK’s economy 12 months ago, the Bank of England’s base rate was at its highest level since 2008 at 5.25% and inflation, although falling, was still at 6.3% in August 2023. Additionally, ahead of this year’s auction, the recently elected Labour Government raised the budget for top-up payments by ￡1.02 billion to incentivise bidders and assist with achieving their ambitious net-zero targets.

The level of economic uncertainty and cost of capital have fallen in the past year, with a degree of stability returning for investors and developers alike and, although some may wince at public money going to foreign investors and renewables developers, there can be no doubt that the successful projects in this year’s auction will make net zero more achievable.

Wind power will likely remain controversial until the problem of its intermittent output is resolved by advanced battery storage or other means. But offshore wind is vital to decarbonising power supply and reducing reliance on volatile gas markets.

Our experienced Energy team at Galbraith would be delighted to answer any questions you may have or offer advice with negotiations between energy suppliers and landowners providing land for renewable infrastructure development.