The government wants to quintuple offshore wind capacity as part of an energy security strategy established in the wake of Russia’s war against Ukraine.
Wind farms and other renewable developers are backed by government guarantees on the price of electricity, known as contracts by difference, which are now awarded every year.
Under the scheme, developers are guaranteed a price for their electricity, known as the “strike price.” If the wholesale price when they are generating falls below the exercise price, developers receive the difference through a tax on consumer bills. However, when the wholesale price is higher than the strike price, they fail to keep the difference.
The wholesale price of electricity is currently extremely high due to high gas costs, around £ 190 per MWh, compared to long-term averages before 2021 of around £ 50 per MWh.
Five offshore wind farms have been awarded an exercise price of £ 37.50 per MWh in the last round of auctions, with a total capacity of 7 GW. These include the Norfolk Boreas project in Vattenfall and the Hornsea offshore wind farm in Orsted.
Contracts have also been awarded for several planned solar projects, with a total capacity of 2.2 GW, at a price of £ 45.99 per MMh, and onshore wind projects in England and Scotland at £ 42.47 per MWh. Small tidal power projects in the initial phase have also been supported, at a cost of £ 178.54 per MWh.
Melanie Onn, deputy executive director of RenewableUK, said: “The results of today’s record auction show that there is a way to replace unaffordable gas with low-cost clean energy.”