Stumbling Offshore Wind Projects May Cause Energy Price Rises

Posted on Mar 25, 2024. by NTI

The Energy and Climate Intelligence Unit (ECIU), a non-profit organisation, has said that consumers could face further increases in energy prices due to the lack of development of cheaper offshore wind power by the government.

They have said that the budget set by ministers is insufficient, which will lead to a large proportion of wind farms that could be built in the future missing out on financial support in this year’s ‘funding round’.

The government’s contracts for difference auction opens for bids this week, and has been set at a record £800m. Renewable energy projects are encouraged by the government by contracts being offered, guaranteeing that consumers will pay a fixed price for the electricity generated by the sites. If wholesale prices drop below that level, users pay subsidies to top up the difference; when prices are higher, the developers pay the difference back to consumers.

ECIU say that the Treasury has set “unrealistic” predictions for power prices for the coming years, and this has effectively diminished the pot of money available to incentivise new projects, in turn leading to the number of new offshore wind farms being “stifled”, and leading to the UK being more dependent on foreign gas imports. The price required by offshore wind farms has fallen sharply over the past decade as the industry has matured. Contracts awarded in recent years have been substantially below wholesale prices.

Their analysis suggests that this would lead to further price rises for consumers.

Jess Ralston of the ECIU said: “Treasury’s caution will likely backfire on bill payers, leaving households at the mercy of greater price volatility. By stifling British offshore wind farms at this next auction the UK could end up importing two and a half times more foreign gas. It’s a backwards step for UK energy security.

“This comes off the back of government fumbling the last auction leading to no new offshore wind farms being agreed.”

A spokesman for the Department for Energy Security and Net Zero said: “The budget for auction round six is over £1 billion, making it the largest ever for our contracts for difference scheme, with more than four times the budget available to offshore wind projects alone. Contracts for difference is designed to help protect consumers and businesses from future uncertainty in the energy market. Last winter, payments reduced the amount needed to fund our energy-support schemes by the equivalent of about £18 per typical household.

“The wholesale or reference prices used for contracts for difference do not significantly impact the running of the auction and which projects are successful.”

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