UK government raises clean energy auction budget by 50% to GBP1.56 billion

The UK government added GBP500 million ($642 million) to the budget for this year's clean energy auction as it attempts to rapidly scale up renewables capacity and make up for last year's failed bidding round, the Department for Energy Security and Net-Zero said July 31.

The GBP1.56 billion per year now available for Allocation Round 6 (AR6) is the largest budget in the history of the UK's contracts for difference (CFD) regime, representing an uplift of 50%. The previous pot, set out in March, was already four times higher than the previous auction.

The budget includes GBP1.1 billion per year for offshore wind, an increase of GBP300 million and higher than all the previous CFD auctions combined, the government said.

Industry players said a bigger pot is necessary for AR6 because the auction's assumptions for capacity factors are too high and power prices too low, meaning the budget would likely be used up faster than it would with more realistic numbers.

The UK's offshore wind industry is also playing catch-up after Allocation Round 5 in 2023 failed to award even a single project, with developers battling cost inflation. After Labour's landslide victory in the July 4 election, the country is aiming to quadruple offshore wind to 60 GW by 2030.

"Last year's auction round was a catastrophe, with zero offshore wind secured, and delaying our move away from expensive fossil fuels to energy independence," Energy Secretary Ed Miliband said in a statement, adding that the bigger budget will "restore the UK as a global leader for green technologies and deliver the infrastructure we need to boost our energy independence, protect billpayers, and become a clean energy superpower."

Keith Anderson, CEO of Iberdrola's UK subsidiary Scottish Power, said the AR6 auction "needed a reset" and welcomed the increased budget.

The uplifted pot also includes GBP185 million per year for established renewables technologies like onshore wind and solar, a GBP65 million increase, and GBP270 million per year for emerging technologies like floating wind, adding GBP165 million.

The AR6 auction takes place Aug. 5-9, with successful projects to be announced in the first week of September.

Bid ceilings were raised by the previous Conservative government late last year in an effort to reflect the rising cost of development. Offshore wind's bid ceiling was set at GBP73/MWh in 2012 prices, an increase of 66% compared with the previous auction.

Analysts at Citi said the bigger pot for offshore wind in AR6 could lead to 5.7 GW of awarded capacity, based on a strike price of GBP60/MWh, some 1.6 GW higher than under the previous budget.

"Given the size of potential eligible projects (10 GW), the additional pot ... is unlikely to meaningfully reduce competition," the analysts said in a July 30 note. "While any pot size increase should contribute to delivering the additional [gigawatts] that contribute to the government's 60-GW offshore wind by 2030, a magnitude of this size is unlikely to move the dial."