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The UK renewable energy industry has warned of reduced or even no participation in the latest auction of state contracts for offshore wind projects with developers reluctant to bid due to rising costs, in the latest blow to the government’s decarbonisation plans.
Ministers are due to announce on Friday the results of this year’s round of support for renewable energy projects, which guarantees a minimum price for each unit of electricity generated, a key tool for reaching the net-zero goal by 2050.
The government has set a target to more than triple offshore wind capacity by 2030 from about 14 gigawatts to 50 gigawatts. The Committee on Climate Change, the government’s independent climate adviser, has described the technology as the “backbone” of the future energy system.
Anna Musat, executive director of policy at trade group Renewable UK, said she expected “very little” at this year’s auction from developers, who have warned that the maximum price on offer from the government is too low to offset rising costs.
“We may get nothing, or we may get the lowest levels of offshore wind removal we have seen since around 2015,” she warned.
“I think it would be very concerning because obviously we have really clear goals for offshore wind… If we don’t build on an annual basis, I think it will be very difficult to achieve that,” she added.
Projects in the UK are supported by so-called “contracts for difference”, where the government guarantees wind developers a fixed, inflation-linked price for 15 years through an annual auction.
The UK’s offshore wind industry has grown rapidly over the past decade and is the second largest in the world after China, providing around 11 per cent of the UK’s electricity in 2021. But it has suffered a series of recent setbacks as developers have been hit hard by the pandemic. . Rising costs worldwide.
In July, Vattenfall suspended work on one of the country’s largest offshore wind farm projects, citing rising costs of up to 40 percent. The Swedish developer said it was no longer viable under the guaranteed price in the contract it was awarded last year.
Developers have repeatedly warned that the maximum price in this year’s auction, which is just below last year’s guaranteed price, was too low given cost inflation. Contracts are available for approximately 5 GW of offshore wind at a maximum of £44 per MWh at 2012 prices.
Alastair Phillips-Davies, chief executive of SSE, one of Britain’s largest renewable energy producers, said the government needed “reform”. [the contract round] If this is the problem everyone expects this weekend.”
In a letter to the government last month, the Scottish Renewables trade body said there was a “real risk” that the auction would fail to secure the investment required from the industry.
In August, Mads Nipper, CEO of Ørsted, the world’s largest offshore wind developer, warned that the government would struggle to find bidders for new projects at this year’s auction.
The government said it remains committed to expanding offshore wind capacity. “The UK is home to four of the world’s largest offshore wind farms, and we have attracted £120 billion of investment in renewables since 2010, with a further £100 billion of private sector investment expected by 2030 – supporting up to 480 A thousand jobs.