The UK Government ramped up its support for renewable energy – including offshore wind – with the latest contracts for difference (CfD) auction round.
CfD auctions are the UK government’s scheme to incentivise investments in renewable energy. CfDs are 15-year contracts between the government and renewable energy developers that sets a guaranteed price per megawatt hour of electricity.
The contract protects consumers and investors from market volatility and price fluctuations for electricity. They encourage private investment in large scale renewable energy infrastructure projects by providing investors with certainty on returns, thereby de-risking projects.
Allocation round six (AR6) was the biggest auction yet with a diverse range of 131 new green infrastructure projects securing a CfD – enough to power 11 million homes, according to government figures.
The government showed strong commitment to making offshore wind “the backbone of the green energy mission” by awarding CfDs to nine offshore wind projects for a total of 4.9 gigawatts (GW) of new capacity.
Ørsted was among the biggest winners with Hornsea 3 and Hornsea 4 awarded CfDs totalling 3.4 GW of capacity.
What do the results of AR6 mean for the UK’s offshore wind ambitions? Can they help keep the UK at the forefront of the global industry?
We spoke with Richard Bodal Hansen, Ørsted’s Director of UK Regulatory and External Affairs, to get his expert take on the impact of AR6.
Richard Bodal Hansen, Ørsted’s Director of UK Regulatory and External Affairs
What do the results of AR6 mean for the UK’s offshore wind ambitions?
From a company perspective, we’re pleased with the results. Securing CfDs in AR6 for both Hornsea 3 and Hornsea 4 is a major milestone. Both projects are important for our global ambition to install 35-38 GW of renewable energy capacity across all green energy technologies by 2030, including 20-22 GW of offshore wind capacity.
For the industry more generally, the outcome of AR6 is an important step for offshore wind as it demonstrates that once again, progress is being made with nearly 5 GW of capacity being secured. This is in stark contrast to the previous allocation round, AR5, where no offshore wind projects received an award.
This sends a strong signal about the government’s ambition, as well as its willingness to work in collaboration with the industry. With a substantial pipeline of UK projects ready to be delivered, it’s so important that this continues and for subsequent allocation rounds to build on this renewed momentum.
What do the results say about the new Labour government and its net-zero ambitions?
Clean energy is central to the government’s growth ambitions and there is definitely a sense of growing momentum. By acting quickly to increase the budget for AR6, the government secured additional capacity across a range of technologies.
AR6 secured 9.6 GW of capacity across a range of technologies including floating offshore wind, tidal, onshore wind, and a record-breaking allocation round for solar, which will form a very important part of meeting the UK’s clean energy targets.
In addition to the allocation rounds, what other steps should the government be taking to help achieve its 2030 targets?
The new government has already made a positive start and acted very quickly in a number of areas with a clear focus on accelerating the delivery of renewables.
In addition to lifting the ban on onshore wind in England and demonstrating their support for solar by awarding consent to three major projects, they are targeting the most significant barriers to deployment by trying to speed up the planning and consenting regime. They are also looking at grid capacity and reforming the queue so that ‘shovel ready’ projects get prioritised.
The government is also adopting a more mission-led approach to delivering renewables with the creation of the Clean Energy Mission Control centre led by Chris Stark which aims to ensure different government departments are working together toward shared objectives.
Why was it so critical to the offshore wind industry that a significant amount of capacity secured CfDs in this auction round?
The CfD regime is the cornerstone of the UK’s clean power strategy and therefore it’s essential for the allocation rounds to be successful.
CfDs are the gold standard of investment instruments because they help de-risk investment. As a result, they both attract private investment and secure consistent, low costs for consumers.
The projects that won contracts in this round will attract an estimated £14 billion of new private investment in the UK economy, according to RenewableUK. And they secured enough renewable capacity to power 11 million homes.
Securing this level of investment is good not only for clean energy and energy security, but for jobs, skills, and the supply chain as well.
Can the results of AR6 keep the UK at the forefront of the global offshore wind industry?
A successful AR6 was needed to demonstrate that the UK is back on track as an attractive destination for private capital.
Appropriately designed auctions, the CfD instrument and a strong pipeline of projects are the key elements needed to maximise investor confidence, value for consumers and investment in the supply chain.
Ambitious targets are helpful – but they need to be backed up by consistently successful allocation rounds and AR6 was a positive step.
Richard Bodal Hansen, Ørsted’s Director of UK Regulatory and External Affairs
Richard Bodal Hansen is the Director of Regulatory & External Affairs for Ørsted in the UK. Richard has over 10 years’ experience working in the offshore wind industry and has previously held senior roles in Ørsted’s legal, commercial and project development teams.
