In a significant stride towards expanding renewable energy, the UK government’s latest auction has successfully secured a record number of new projects, marking a pivotal moment for the country’s energy transition.

With more than 130 wind, solar, and tidal energy projects clinching funding, this round of the “contracts for difference” (CfD) scheme has set a new high, securing 9.6 gigawatts (GW) of capacity. This figure is a remarkable threefold increase from the previous year, underscoring the growing momentum behind renewable energy development in the UK.

The auction results are particularly noteworthy as they come on the heels of last year’s failure to secure any new offshore wind projects, a shortfall that cast a shadow over the UK’s renewable energy ambitions.

This year, however, the picture looks markedly different: 4.9GW of offshore wind capacity has been confirmed, alongside a groundbreaking 400MW floating offshore wind project—the largest of its kind globally. These achievements reflect a strategic shift and heightened determination within the UK government to bolster its renewable energy portfolio.

Resurgence of Offshore Wind

The CfD scheme, which offers fixed-price contracts to low-carbon electricity generators through a reverse auction process, plays a crucial role in the UK’s energy strategy. Projects compete against each other to win contracts for the electricity they will produce, with winners awarded a CfD that ensures a stable “strike price” for their output.

If market prices fall below this strike price, a levy is added to consumer bills to make up the difference. Conversely, if market prices exceed the strike price, the project contributes the excess back to consumers.

Last year’s auction, however, was a stark contrast to this year's success. It was the first time since the CfD scheme's inception in 2015 that no offshore wind projects were awarded contracts. Only 3.7GW of total renewable capacity was secured, predominantly composed of solar and onshore wind.

This shortfall was largely attributed to economic pressures, including increased commodity prices, supply chain disruptions, and elevated borrowing costs. The International Energy Agency (IEA) noted that offshore wind investment costs had risen by 20%, even before factoring in higher interest rates, with some projects like the Norfolk Boreas wind farm seeing overall cost increases of up to 40%.

To prevent a repeat of last year’s outcome, the government implemented several key changes ahead of this year’s auction. Offshore wind was reinstated into a separate funding category, and the auction's budget was significantly increased.

The price cap for offshore wind projects was also raised by 66%, from £44 to £73 per megawatt-hour (MWh). Similar adjustments were made for other technologies, including a 30% increase for solar and a 32% increase for geothermal energy.

These strategic adjustments, combined with a renewed focus on enhancing the auction framework, culminated in the most successful auction to date, with 9.6GW of new capacity secured across 131 projects. This not only marks a record in terms of volume but also signals a robust market response to the updated CfD scheme, reflecting strong confidence in the UK’s renewable energy future.

Renewable Energy’s Expanding Footprint

Among the key achievements in this auction round was the confirmation of 3.4GW of new-build offshore wind capacity, awarded at a strike price of £58.87/MWh. This included major projects like Ørsted’s Hornsea Project 4 and ScottishPower’s East Anglia 2.

Additionally, 1.6GW of previously submitted offshore capacity was awarded contracts under a new “permitted reduction” mechanism, allowing developers to adjust their commitments in response to market conditions.

Solar and onshore wind also saw significant gains, with 3.3GW of solar capacity secured across 93 projects and 1.0GW of onshore wind across 22 projects. These technologies were awarded contracts at prices significantly below their administrative strike prices, indicating strong competition and robust market engagement.

A standout project in this year’s auction is the 400MW GreenVolt floating offshore wind farm, set to become the largest of its kind in the world. With a strike price of £139.93/MWh, this project exemplifies the UK’s commitment to pioneering new technologies in the renewable sector. Furthermore, six tidal projects with a combined capacity of 28 megawatts (MW) were also awarded contracts, reinforcing the UK’s leading position in tidal energy development.

Navigating the Changing Economic Landscape

Despite the positive outcomes of this year’s auction, the renewable energy sector continues to grapple with economic challenges.

The strike prices for offshore wind, solar, and onshore wind have all risen from their record lows in 2022 due to increased costs linked to the global energy crisis and rising interest rates. However, renewables remain some of the most cost-effective options for new electricity generation in the UK.

Cornwall Insight, an energy consultancy, predicts that wholesale electricity prices will average £82/MWh for 2024/25 and £84/MWh for 2025/26. In comparison, CfD contracts awarded in this year’s auction are expected to provide electricity at competitive prices, even when adjusted for inflation.

Analysts suggest that these new projects will ultimately reduce consumer bills by increasing the supply of low-cost, low-carbon power, which is essential for driving down overall power sector emissions.

Martin Young, an industry consultant at Aquaicity, highlights that the estimated budget impact for offshore wind in this year’s auction is £870 million, compared to the £1.11 billion that was available. This indicates that there was strong demand for the available budget, with many projects vying for contracts, reflecting the continued attractiveness of the UK’s CfD scheme.

Preparing for Future Challenges

While this year’s auction represents a major step forward, there are significant hurdles to overcome if the UK is to meet its ambitious renewable energy targets.

The new Labour government has set a goal of achieving a net-zero power system by 2030, including deploying 55GW of conventional offshore wind and an additional 5GW of floating offshore wind. With only 15GW of offshore wind capacity currently operational, the UK needs to more than triple this figure in the next six years.

Meeting these targets will require a substantial ramp-up in project development, and the auctions over the next two years are seen as critical to securing the necessary capacity.

Energy UK, a leading trade body, has stressed that the upcoming auctions must deliver 26GW of new capacity to stay on track for the 2030 goal. This would require an unprecedented fourfold increase in offshore wind capacity in a single auction, posing challenges related to supply chain constraints and workforce availability.

Aurora’s Pranav Menon notes that while this year’s auction results are encouraging, achieving the 60GW goal will necessitate continued progress and commitment. The focus will now shift to next year’s auction, which represents the final opportunity to secure the remaining capacity needed for a net-zero power system by 2030.

A Pathway to Net Zero

The UK’s latest CfD auction results highlight the significant strides being made in the country’s renewable energy sector. With a record number of projects secured and a diverse range of technologies represented, the UK is well on its way to becoming a global leader in clean energy.

However, the path to net zero is fraught with challenges. The need for a “big step-up” in capacity building, coupled with the economic pressures facing the renewable sector, means that the UK must continue to innovate and adapt to meet its ambitious climate goals.

The upcoming auctions will be crucial in determining whether the UK can achieve its vision of a clean, sustainable energy future by 2030.

As the country looks ahead to this next chapter, the focus will be on maintaining momentum and ensuring that the transition to renewable energy remains both equitable and economically viable.

By continuing to invest in new technologies and supporting the growth of the renewable sector, the UK can pave the way for a cleaner, greener future for a country that has long promised (yet underdelivered) on its net-zero agenda.