Offshore wind prices fall to new record-low in latest UK auction

Bloomberg:

The biggest-ever UK renewables auction has awarded contracts to offshore wind at a record-low price, helping reduce the country’s dependence on volatile fossil fuel prices and easing future bills for homes and businesses.

The contract price for wind farms was 5.8% lower than the previous auction, according to a statement from the Department for Business, Energy and Industrial Strategy. Orsted A/S, Iberdrola SA’s Scottish Power unit, Vattenfall AB and a project including AB Ignitis Grupe, EDP Renovaveis SA and Engie SA were among the winners.

The UK is seeking to achieve net-zero emissions by the middle of the century, and wind power is viewed as central to achieving the country’s climate goals. The turbines will add about 7 gigawatts of clean power capacity to the nation’s fleet from 2026, bringing Britain closer to its target of installing 50 gigawatts by the end of the decade.

The UK also awarded contracts for almost 900 megawatts of onshore wind farms and 2.2 gigawatts of solar. Put together, the new renewable energy projects will be able to provide power for around 12 million homes.

Offshore wind farm operators will sell power for as little as £37.35 ($44.613) per megawatt hour in 2012 figures, 5.8% below the lowest bid in the most recent auction that cleared in 2019. When adjusted for inflation, that’s about £45.41 per megawatt hour, about a quarter of the UK’s day-ahead power price currently.

The decline in price developers are willing to accept comes even after the cost of wind turbines rose in recent months as prices increased for key metals like steel and supply chain disruptions created expensive delays. The prices will be adjusted for inflation when the power is delivered.

Offshore wind power costs have fallen dramatically in recent years as the UK supported the industry to scale up industrialize production of larger, more efficient turbines. Britain’s support mechanism grants wind-power operators fixed prices to sell electricity for 15 years. If the market price is below the contract price, the government subsidizes the difference. But if the market is higher, the wind farms pay money back to the government. Until recently, the system has worked as a subsidy, but starting last year, wind farms began paying money back to the government as wholesale energy prices soared.

[Will Mathis]

More: UK’s biggest-ever renewables auction is also the cheapest