Offshore wind returned to the fray in the UK's latest renewables auction after blanking in the last bidding round in 2023. But while nearly 5 GW of projects were awarded contracts Sept. 3, industry participants warned that a substantial gap in the pipeline still exists, with time running out to achieve a quadrupling of installed capacity by 2030.

Allocation Round 6 (AR6) of the UK's contracts for difference (CFD) program ushered through 9.6 GW of renewables. The result was framed as a success by the government and industry alike, with the awarded total only bettered once in five previous auctions.

Offshore wind participants were similarly upbeat, especially given that last year's allocation round failed to award even a single contract. Developers chose to sit out of the process due to rising project costs and CFD prices that they said were uneconomical.

"It's good to see that we're back on track and we're seeing substantial allocations coming through again, which is what the industry really needed," Jonathan Cole, CEO of Macquarie Group Ltd.-backed offshore wind developer Corio Generation Ltd. and chairman of the Global Wind Energy Council, said in an interview.

The result provides a boost to the UK in its effort to reach about 55 GW to 60 GW of offshore wind capacity by 2030.

Yet the 5 GW of offshore wind awards in AR6 is less than the 7 GW awarded in 2022 and below even the 5.5 GW awarded in the auction before that in 2019. The AR6 total also includes some 1.6 GW of offshore wind capacity that had rebid after being awarded CFDs in a previous auction.

Analysis by PA Consulting found that 31 GW of UK offshore wind capacity is now operational, under construction or contracted via CFDs. But that still leaves 24 GW uncontracted, with the government's ambitious 2030 goal of at least 55 GW coming ever closer.

"It's a perfect example of how expectations have been reframed," said Alon Carmel, renewable energy expert at PA Consulting. "It's not so much back on track as back in the game. On track suggests we're on track to reach the targets, which we're very much not."

'Rational' pricing

The UK had set the scene for offshore wind's return to the CFD winners' enclosure after the previous Conservative government raised the ceiling prices for AR6 and the new Labour government expanded the monetary budget to the highest level in CFD history.

Awarded offshore wind contracts came in at £58.87/MWh in 2012 money for newly bid projects and £54.23/MWh for those resubmitting capacity. With inflation, the prices equate to an estimated £89.7/MWh for newly bid projects and £82.6/MWh for those resubmitting capacity in 2027 terms, according to Jefferies.

The AR6 strike price for the newly bid projects is in fact higher than any CFDs awarded to offshore wind in the 2019 and 2022 auctions and at a similar level to the lowest prices seen in 2017.

Onshore wind and solar contracts came in at about £50/MWh in 2012 money, with Cole describing the result as "a more rational hierarchy of pricing." Offshore wind strike prices in 2022 came in lower than those for onshore wind and solar.

The low prices in that auction forced Sweden's Vattenfall AB to back out of its Norfolk Boreas offshore wind project when capital costs started to rise, and they led other developers to rebid part of their already awarded capacity into AR6 in the hope of higher prices.

"The reset of the prices was so desperately needed to give investors and developers hope that this is going to be a growth sector again," Carmel said. "For them it matters less whether we get to 50 GW or 55 GW. It's about whether it's really going to start growing again after a shock to the system last year."

Winning bidders

Offshore wind giants Ørsted A/S and Iberdrola SA were the big winners in AR6. Ørsted was awarded a 2.4-GW contract for its newly bid Hornsea 4 offshore wind farm while Iberdrola won a 963-MW contract for its East Anglia Two project.

Together, the developments represent an investment volume between about £8.7 billion and £10.1 billion, based on UBS Investment Bank's capital expenditure estimate of £2.6 million to £3 million per megawatt.

Ørsted also won a 1.1-GW contract for Hornsea 3 and Iberdrola won a 159-MW contract for East Anglia Three, both of which have legacy CFDs from 2022.

In light of cost inflation, the government allowed offshore wind projects to reduce their previously awarded CFD capacity by up to 25% and reenter it into AR6. About 1.6 GW of "permitted reduction" capacity was awarded new contracts, including projects from Ocean Winds SL and Red Rock Power Ltd.

"I think that you would look at that [1.6 GW] as a safeguarding of capacity that we still want to build and a fair reflection then of how things have evolved since the first pricing round for those projects was concluded," Cole said.

An Ørsted spokesperson said the amount of capacity a project could bid into AR6 was not limited by the capacity removed from its Allocation Round 4 contract, explaining why the company's 1.1-GW award for Hornsea 3 is more than 25% of the project's total size of nearly 3 GW.

"We will assess the options on how to split the overall project capacity between AR4 and AR6 within the various contract frameworks and technical limitations of the project," the spokesperson added.

Future auctions crucial

In total, more than 10 GW of offshore wind projects bid in AR6, according to analysis by PA Consulting. That means about 5 GW of offshore wind projects that were eligible did not win contracts.

Germany's RWE AG was one notable absentee. The company has a sizeable development portfolio in the UK that includes the 1.4-GW Vanguard East and Vanguard West projects as well as the 1.1-GW Awel y Môr extension wind farm.

Analysts at UBS predicted that Allocation Round 7 in 2025 will be a "two-way contest" between RWE and SSE PLC, whose more than 4-GW Berwick Bank project is awaiting consent from the Scottish government.

Industry observers see next year's auction, and Allocation Round 8 a year later, as the last opportunities to have capacity online by 2030 and to close what is currently a 24-GW gap.

"That's done by the early signposting of the timing, and of the budget, and of the parameters, and of the administrative prices, so that people can bid in and maximize the amount of capacity that comes out on the other side and actually gets built within the timeframe," Cole said. "What's clear is if we're going to hit the targets that the new Labour government has set, we need all the offshore wind projects we can."