Image credit: Principle Power
The UK's lauded Contracts for Difference (CfD) scheme—a cornerstone in the government's ambition for a greener future—is teetering on the edge of disappointment. Scheduled for the big reveal tomorrow, the fifth auction cycle appears to have garnered scant interest, particularly from the offshore wind sector, shaking the foundation of the UK's energy security and zero-emissions roadmap.
The industry has been sounding the alarm while 15-year contracts with fixed clean power pricing dangle enticingly for bidders. The issue? Skyrocketing material and labor costs alongside rising interest rates. These financial barricades have thwarted the interest in large-scale offshore wind projects, casting long shadows over the auction's reserve price and £227 million budget—figures repeatedly criticized as woefully inadequate.
In a bid to assuage concerns, the government added an extra £22 million to the CfD coffers last month, initially set at £205 million. But has it moved the needle? Industry voices argue: hardly.
A spokesperson for RenewableUK said the trade body expected tomorrow's auction results to be "extremely disappointing" for offshore wind but could not confirm whether offshore wind farm developers had lodged any bids.
The Times reported this morning that no bids to develop large offshore wind farms are thought to have been submitted.
In contrast, floating offshore wind farms—though smaller in scale and power—might as well be phantoms in this auction cycle, given that only two such projects met the essential criteria for participation. Even if a miraculous last-minute rally occurs, insiders reckon the new renewable capacity will fall far beyond government expectations.
The pessimism is deeply etched in the minds of developers like Vattenfall, ScottishPower, and SSE, who have publicly vented about the debilitating effects of inflation. Total and SSE Renewables, partners in the Seagreen offshore wind farm, have gone a step further: they've opted out of this year's CfD round entirely.
In a startling revelation, Vattenfall halted work on its 1.4GW Norfolk Boreas wind farm after witnessing a 40% cost hike, causing industry experts to speculate on a potential domino effect.
The shaky state of the auction casts a gloomy shadow over the UK's Energy Security Strategy. The grand plan involves ballooning offshore wind capacity from less than 14GW today to a whopping 50GW by 2030. Unless the CfD system gets an overhaul to mirror the spiraling costs of development, achieving net zero by 2035 may become a pipe dream.
Consumer energy bills present another problem for lawmakers. The hesitancy to approve more expensive contracts is palpable. Yet, proponents of renewable energy argue that even under the stress of inflation, offshore wind remains a cost-effective alternative to nuclear and fossil fuel-based power.
In a new briefing paper released today, Greenpeace warned that the failure to secure bids from offshore wind developers would amount to "the biggest failure for clean energy policy since 2015".
"The failure arises from an effort to save consumers pennies that will actually cost them pounds," it said. "Wind and solar remain vastly cheaper than the alternatives for generating electricity (fossil gas) but are now unlikely to come forward for construction within this auction round."
Amidst the flurry of grim forecasts encircling the offshore wind industry, Octopus Energy's sudden yet pivotal announcement served as a clarion call of optimism. Today, the energy giant revealed an undisclosed yet undeniably consequential investment in Deep Wind Offshore—fueling the company's expansion plans in Norway, Sweden, and the emergent South Korean market.
Not merely a passing transaction, this investment signals a tectonic shift for Deep Wind Offshore. The infusion of capital from Octopus amplifies the company's ambitious blueprint to unleash a staggering 10 GW of renewable energy capacity by 2032. A venture of this magnitude doesn't just bolster Deep Wind's aspirations; it elegantly dovetails with Octopus Energy's grand design—a hefty $20 billion commitment towards novel offshore wind projects across this decade.
Deep Wind Offshore isn't a fledgling upstart but an enterprise rooted in Norwegian soil, standing tall with the backing of the country's maritime and energy behemoths—Knutson OAS, Haugaland Kraft, and Sunnhordland Kraftlag. Launched merely a couple of years ago, in January 2021, the company's meteoric ascent is hard to ignore. Markets? They've penetrated several. Partnerships? Forged robust alliances with industry powerhouses like EDF Renewables and BP.
Zoisa North-Bond, CEO of Octopus Energy Generation, said: "The potential for offshore wind is absolutely massive, and in many ways, we're only at the start of this burgeoning industry. Working with Deep Wind Offshore is hugely exciting, providing access to new offshore wind markets for us where they have deep expertise. Ultimately, the more offshore wind farms built across the globe, the quicker we can drive down bills and create a more secure energy system for everyone."
Knut Vassbotn, CEO at Deep Wind Offshore, said the deal meant the company now has "the strength to rapidly grow internationally." "The investments from Octopus and our connection to Norwegian municipalities ensure that we not only will provide abundant renewables, but also a foundation for the future growth across The North Sea," he added.
What makes this deal even more compelling is its context within Octopus Energy's broader investment landscape. This latest move isn't isolated but extends a lineage of strategic investments, including the Lincs and Hornsea One wind farms in the UK. Overseas, they've ventured into groundbreaking projects like the Borselle V wind farm in the Netherlands and have backed Simply Blue, a specialist in floating offshore wind technologies.