UK Annual Renewable Energy Auction May Go “No Bid” For Offshore Wind Power

It isn’t just the Chinese stock market that’s going “no bid” this week, it’s also offshore wind power at the UK’s annual renewable energy auction.

For the first time since the UK’s annual renewable energy auction began almost 10 years ago, the system for awarding subsidies is seeing no developers bid for offshore wind power this year as a result of rising costs, according to a new report by Bloomberg. 

In the past, offshore wind farms have been a success, with farms along the UK coastline benefitting from state financing. But supple bottlenecks and rising costs are now forcing companies to submit lower bids, pushing down the maximum price they can offer. 

The results of the auction will be announced next month, but Bloomberg writes that “the funding on offer this year may be too little to attract any bidders”. A lack of bidders for offshore wind could, in turn, “pose a major setback” for the government’s climate targets. Faisal Wahid, a senior consultant at LCP Delta, a clean energy consultancy, told Bloomberg: “If we see a situation with no offshore wind clearing this year, that’s a very serious signal for the government to act and redesign the auction for next year. If the government doesn’t change it, that’s a signal of a shift in green policies.”

“However, we understand there are supply chain pressures for the sector globally, not just in the UK, and we are listening to the sector’s concerns,” a spokesperson for the UK’s Department for Energy Security and Net Zero added.

The winner of last year’s auction, Vattenfall AB, has shelved a project for a 1.4 gigawatt UK wind farm claiming that “the development is no longer viable after costs for the technology soared 40%”. They would have provided power to 1.5 million UK homes, the report says. 

Rob Anderson, project director of Vattenfall’s Norfolk Zone, said: “Conditions are extremely challenging across the whole industry right now.”

Eirik Hogner, partner and deputy portfolio manager at hedge fund Clean Energy Transition LLP, said of the auction: “For offshore wind it’s truly horrendous and our view is that no offshore project should win in this round. From an energy security and a 2030 climate target perspective, if offshore is zero, you have a huge problem.”

Recall, just days ago we published an article called “There Is A Financial Crisis Brewing In Offshore Wind Energy”, which laid out the distress the industry is in. In that article by Felicity Bradstock, via OilPrice.com, we noted:

• The costs associated with U.S. offshore wind projects have risen by 57% since 2021 due to inflation in components and labor costs, as well as rising interest rates, leading to a large number of canceled or renegotiated deals.

• The recent cancellations of major offshore wind projects have erased billions of dollars in planned spending and put at least 9.7 additional gigawatts of offshore wind projects in the U.S. at risk.

• Despite the financial crisis in offshore wind energy, the Biden administration is persevering with its goal of achieving 30 GW of offshore wind energy capacity by 2030.

Put simply, the issue we laid out was that offshore wind currently costs about two to five times more than onshore wind.

“The expense associated with a typical US offshore project, before bonus tax credits related to the Inflation Reduction Act, has increased by 57% since 2021,” Bloomberg recently reported, citing figures from BloombergNEF.

“Inflation in the cost of components and labor explain about 40% of that and the rest is tied to rising interest rates.”

This means that any developers who signed long-term development contracts before the sharp increase in costs must now either re-negotiate their deals or walk away from them entirely.

“Energy coming from these projects is desperately needed,” Helene Bistrom, the head of Vattenfall’s wind business, was recently quoted by Fortune.

But, she continued, “with new market conditions, it doesn’t make sense to continue.”

This month has seen a disastrous number of canceled and abandoned offshore wind deals which “erased billions of US dollars in planned spending” in the final week of July alone, according to Fortune. Spanish utility Iberdrola SA agreed to pay $48.9m in fines to cancel a wind power contract off the coast of Massachusetts. In Rhode Island, Danish developer Orsted A/S’s bid to produce offshore wind power was rejected due to rising operational and development costs.