66% boost for offshore wind investors as UK raises maximum CfD prices
The UK government said today it has raised the maximum price offshore wind and other renewables projects can receive in the next Contracts for Difference (CfD) auction.
The government said it decided to hike rates "following an extensive review of the latest evidence, including the impact of global events on supply chains."
The maximum strike price has been increased by 66% for offshore wind projects, from £44/MWh to £73/MWh, and by 52% for floating offshore wind projects, from £116/MWh to £176/MWh.
"This will help ensure projects are sustainably priced and economically viable, building on the success of previous CfD auctions," a statement read.
Low investor appeal
Due to high inflation and mounting costs, investing in clean energy projects or related-firms is becoming increasingly unattractive with some investors cancelling projects altogether.
This is partly due to the terms of the UK government's main support scheme for renewables, the CfD program.
Firms are invited to submit open bids for these deals, which guarantee minimum prices consumers will pay once energy generation starts.
However, the maximum price per unit of electricity available under the scheme is based on costs in 2012, when the average inflation was about 2.6%. In comparison, inflation experienced a steep drop but still stood at 4.6% as of yesterday.
Energy Security Secretary Claire Coutinho explained that "we have started the process of our latest Contracts for Difference auction for renewables, opening in March next year." adding that "we recognise that there have been global challenges in this sector and our new annual auction allows us to reflect this."
First established nearly a decade ago, the CfD has helped reduce the cost of renewables. It aims to drive down costs and to increase investor appeal.
In addition, the government said today it is also increasing maximum bid prices for other technologies, including geothermal by 32% - from £119/MWh to £157/MWh, solar by 30% - from £47/MWh to £61/MWh, as well as tidal by 29% - from £202/MWh to £261/MWh3.
Responses within the industry to today's announcement were overwhelmingly positive, as the higher prices will give investors and providers a shot in the arm.
Responding to today's announcement, RenewableUK’s Chief Executive Dan McGrail said: "With intense international competition for investment in renewables, we welcome the commitment to the sector."
He added: "Although renewables haven’t been immune from the recent rises in financing and supply chain costs which all major infrastructure projects have faced, they remain the lowest cost means of generating new electricity. Even at these new prices, there is still no cheaper way to meet the UK’s rising electricity demand and increase our energy security."
Energy UK’s Chief Executive, Emma Pinchbeck, said this morning: "We very much welcome the government responding to the increased global competition and the economic challenges facing developers by showing more ambition and giving greater confidence to investors, which will help build a domestic green powerhouse that benefits our own economy and people."