CfD results: Cost of offshore wind falls by 30%

By: Tom Russell 20/09/2019 4C Offshore

General Windfarms

On the same day that Climate Action Strikes are taking place globally, the Department for Business, Energy & Industrial Strategy (BEIS) has revealed the successful applicants for the latest round of the Contracts for Difference (CfD) auction which provides subsidy support for major renewable energy infrastructure projects.

A total of six offshore wind farm projects were successful in the third round of the auction which saw the cost of offshore wind drop to around 30% lower than the second auction held in 2017. Projects are now being delivered for as low as £39.65/MWh.

The successful projects included the Doggerbank Creyke Beck A (£39.65/MWh), Doggerbank Creyke Beck B (£41.61/MWh), Doggerbank Teeside A (£41.61/MWh) Forthwind (£39.65/MWh), Seagreen Phase 1 (£41.61/MWh) and Sofia (£39.65/MWh) offshore wind farms. The cumulative capacity of these awarded projects exceeds 5.4 GW.

SSE and Equinor are behind the three Doggerbank projects which will have a combined capacity of 3.6 GW and are located more than 130 km off the east coast of UK in the North Sea. The projects are expected to produce enough energy to power the equivalent of 4.5 million UK homes. The project partners estimate that the development will trigger a total capital investment of approximately £9 billion between 2020 and 2026. The partners are planning for final investment decision for the first project during 2020 and first power generation is planned for 2023.

SSE is also developing the 454 MW Seagreen Phase 1 project located around 27 km from the Angus coastline in Scotland. It is expected to power around 560,000 households and is the first phase of SSE's Seagreen development.

innogy's Sofia offshore wind farm will have a capacity of 1400 MW and cover an area of almost 600 square kilometres. It is located 165 km off the UK’s North East coast, on Dogger Bank in the North Sea. The project is expected to power around 1.2 million homes featuring 200 turbines.

The Forthwind projects is a two turbine demonstration project being developed by Cierco Ltd. It will feature two new prototype turbines not currently offered in the marketplace. The demonstration project will be located 1.5 km off of the northern shore of the Firth of Forth at Methil, Scotland, with the aim to validate the technical and operational abilities of the new offshore wind turbine technology on fixed foundations.

Energy and Clean Growth Minister Kwasi Kwarteng commented on the results of the auction: "Offshore wind is a British success story, with new projects at record low prices creating new opportunities for jobs and economic growth as we leave the EU.

The support we’re announcing today will mean that over 7 million more homes will be powered by renewable energy as we decarbonise our energy system – crucial as we continue on the road to net zero emissions by 2050."

About the CfD auction

The CfD auction see contracts issued between low carbon electricity generators and the government owned Low Carbon Contracts Company (LCCC). A generator is paid the difference between the ‘strike price’– a price for electricity reflecting the cost of investing in a particular low carbon technology – and the ‘reference price’, a measure of the average market price for electricity in the GB market.
The CfD allows developers to secure a fixed, pre-agreed price for the low carbon electricity they produce for the duration of the contract. It aims to give greater certainty and security of revenues to electricity generators by reducing their exposure to volatile wholesale prices, while protecting consumers against paying for higher support costs when electricity prices are high.

Previous rounds of the Contracts for Difference scheme have seen around 10GW of new renewable power projects awarded contracts in total, with the potential to provide enough clean electricity for over half a million homes each year.

The first CfD allocation round (AR1) ran from October 2014 to March 2015. The second (AR2) ran from March to September 2017. Three offshore wind farms were successful in round 2: Hornsea Project Two, Moray Offshore Windfarm (East) and Triton Knoll. The results of round 2 were published on 11^th September 2017, and saw the cost of offshore wind energy in the UK drop by nearly 50%, to £57.50/MWh, compared to the previous round. This meant offshore wind was cheaper than the cost of the 35-year contracts for new nuclear power of £92.50/MWh (Hinkley C).

The UK is currently a world leader with regards to installed offshore wind capacity with 9.9 GW installed and 3.7 GW in construction or post financial closure. The government has set a target for ‘up to 30 GW’ of offshore wind by 2030.

Today's announcement follows news yesterday (19th September 2019) that The Crown Estate has officially launched Offshore Wind Leasing Round 4, opening up the potential for at least 7 GW of new seabed rights for offshore wind development in the waters around England and Wales.

For more information on the offshore wind industry in the UK and further afield, click here.

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