Offshore wind developers halt UK expansion over ‘uncompetitive’ prices

Net zero ambitions put in doubt after Treasury accused of ‘not listening’ to energy industry over growing global competition

a ship passing wind turbines at RWE's Gwynt y Mor
Gwynt-y-Mor, the world's second largest offshore wind farm, is one of a number of success stories for UK renewable power Credit: Ben Birchall/PA Wire

The UK’s net zero ambitions are expected to be dealt a blow as offshore wind farm developers halt new projects because of a shortfall in government funding.

On Thursday night, no major new offshore wind projects were expected to be included in the latest annual round of renewable contracts to be announced on Friday, The Telegraph understands.

There were five major projects, with a total capacity of 5GW, that were eligible to bid for contracts to boost the country’s current 14GW of offshore wind.

But industry sources said it was “likely” that none had chosen to bid into the process, because the Government failed to offer sufficient prices for their energy.

The outcome will deal a blow to the Government’s ambitions to install 50GW of offshore capacity by 2030, and remove fossil fuels from the electricity grid by 2035.

Developers will now have to wait for the next round in 2024 before deciding whether to continue.

Every year, wind farm developers bid for contracts to build new projects that supply electricity at a price guaranteed by the Government. This is currently lower than wholesale electricity prices, with the difference paid back to consumers.

But industry sources say the prices offered by the Government in this year’s round have been too low amid rising global supply chain costs and growing competition from the US, Europe and China.

Among those companies that have suggested they would not go ahead is the Scottish energy giant SSE, which was eligible to bid for its Seagreen 1A project off the coast of Scotland.

Speaking to The Times earlier this year, the company’s chief executive said the Government had set prices “at the wrong level”.

Earlier this year, the Danish energy giant Orsted warned that rising costs might threaten its ability to continue with its Hornsea 3 project off the North Sea, which already has a government contract for its electricity.

It has warned that it will not be able to pursue its planned Hornsea 4 project if prices offered by the Government do not rise next year, The Telegraph understands.

The Government has ignored calls to increase the guaranteed prices offered to developers, pushing back against their concerns during meetings with the industry.

“The Treasury has been repeatedly warned that their modelling no longer matches reality, and they did not listen,” one industry source said.

An eleventh hour move in August to increase the overall pot of money available by around £20 million to a total of £190 million is not understood to have made a difference to the number of bids.

The Government has not changed its offer to wind farms of a maximum guaranteed price of £60 per MWh, which is lower than unit prices in the US and China last year.

Wind farm developers say their supply chain costs have increased by 20 to 40 per cent, and there is growing competition for resources because of US and EU subsidy programmes.

‘We could be in trouble’

If the Government fails to improve its offer to wind farm developers next year, green groups fear the UK’s 2035 ambitions could be put in jeopardy.

As a result of the failure to build, bill payers will be worse off by around £1 billion a year because of lost renewables, which are significantly cheaper than current gas prices, according to the Energy and Climate Intelligence Unit (ECIU) think tank.

“The US, China, the EU, they’re all now wanting to basically copy the UK and have their own huge offshore markets,” said Jess Ralston from ECIU. “So there’s more competition than probably ever before for supply chains, resources and investment. And that means if the UK doesn’t look attractive, then the investor is going to go elsewhere.”

She added: “If they don’t correct it for next year’s auction, we could be in trouble.”

UK remains ‘committed’ to net zero

The Government declined to comment on which projects would be funded in Friday’s results.

A Department for Energy Security and Net Zero spokesman said: “Renewables provided 40 per cent of our electricity last year, compared to 7 per cent in 2010, with offshore wind and the Contracts for Difference scheme playing a big part in that growth.

“The UK is home to the world’s four largest offshore wind farms and we have attracted £120 billion investment in renewables since 2010, with a further £100 billion in private sector investment expected by 2030 – supporting up to 480,000 jobs.

“We remain committed to further increasing our use of renewables, including offshore wind, to meet our net zero targets and decarbonise our electricity sector by 2035.”