The UK government has increased the maximum price for offshore wind in its next renewables auction by 66% to combat rising project costs, the Department for Energy Security and Net-Zero said Nov. 16.

The maximum strike price will rise from £44/MWh to £73/MWh for fixed-bottom offshore wind in 2024's contracts for difference (CFD) auction after this year's bidding process failed to award a single offshore wind contract because of the low ceiling price.

The move comes as developers continue to face inflated costs and rising interest rates, with Swedish utility Vattenfall AB this year suspending development of its 1.4-GW Norfolk Boreas offshore wind farm. The project won a contract in 2019's CFD auction at £37.35/MWh.

All CFD prices are given in real 2012 currency, with offshore wind's new strike price equating to about £100/MWh in nominal terms, according to analysts at RBC Capital Markets.

The new bid ceiling for Allocation Round 6 will help ensure projects are economically viable and shore up new capacity as the UK pursues 50 GW of offshore wind by 2030, the government said.

Offshore wind will also be given a separate funding pot in Allocation Round 6 "in recognition of the high number of projects ready to participate," the government added.

Major power groups like Vattenfall, SSE PLC and Iberdrola SA unit Scottish Power Ltd. have projects that could be in line to bid. SSE executives on Nov. 15 said 10 GW to 12 GW of offshore wind need to be contracted in each of the next two CFD auctions if the 50-GW target is to be reached.

The changes to the auction could enable a record level of private investment in offshore wind projects next year, lobby group RenewableUK said, with at least 10 projects likely to be eligible.

"The framework they've set out today is a significant step forward in securing this," said Dan McGrail, CEO of RenewableUK. "Although renewables haven't been immune from the recent rises in financing and supply chain costs which all major infrastructure projects have faced, they remain the lowest-cost means of generating new electricity."

Keith Anderson, CEO of Scottish Power, said the decision to raise price caps shows the government is listening and is committed to the offshore wind sector's growth.

"The real test of that ambition will come when the overall budget for the next auction round is set next year. But, no doubt about it, this is a step in the right direction," Anderson said.

CFD contracts, awarded for 15 years, are structured as two-way payments depending on whether the market price of electricity is above or below a project's awarded strike price.

The government also raised maximum prices for other renewable technologies ahead of Allocation Round 6. The strike price for floating offshore wind projects is set to increase to £176/MWh from £116/MWh in the next auction.

Geothermal strike prices were up 32% to £157/MWh while tidal energy was raised by 29% to £261/MWh. Solar's bid ceiling was also raised by 30% to £61/MWh from £47/MWh.

Alongside the increased strike prices, the government also launched a plan to incorporate nonprice criteria in future auctions. From 2025, bidders need to demonstrate environmental and economic sustainability, including how a project's supply chain affects jobs and communities.

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