UK offshore wind: auction failure strengthens hand of renewable energy industry

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In tennis one calls this result a bagel, a zero. The UK’s latest annual power auction received no offshore wind power project bids, the government said on Friday. It had served up a power price cap equivalent to about £60 per megawatt hour in today’s prices. That proved too low. Nevertheless, this could be good news for the wind industry.

Consider this a predictable surprise. A pre-announced price cap was about a fifth below a recent Irish Sea auction. Some companies had moaned publicly about the proposed UK price. That offered a warning. Wind farm companies refused to participate.

All is not lost. German bureaucrats took a parsimonious view on their price cap in a December wind auction, producing a historically low subscription rate near 20 per cent. Higher prices in the next two quarterly auctions earlier this year boosted that interest about seven times.

This issue is not limited to Europe. Massachusetts had to cancel offshore wind projects when bidders pulled out. Seeing this, New York watchdogs sound more pragmatic. They are considering petitions for increased power purchase agreements. These average 48 per cent on four projects from auction winners including Equinor, BP and Ørsted, notes Deepa Venkateswaran at Bernstein.

New York does not want delays. But these will hit the UK offshore wind sector if the British government does not act promptly. With no change to the schedule, an upward adjustment to the price cap would require a year’s wait. Plus some earlier wind projects are also stalling. The government could miss its offshore wind capacity target of 50GW for 2030.

Any fault goes to bureaucrats concerned about inflationary pressures. But natural gas volatility is the main factor in power price fluctuations. In coming years, offshore wind can offer more additional scale than most other renewable power sources. That means the sooner offshore wind power comes on stream the faster gas can be replaced.