No energy companies have submitted bids in the government’s offshore wind auction, sources have said, in what would be a significant blow to Rishi Sunak’s plans to meet climate targets and drive down energy bills.
Industry insiders suggested not a single firm had taken part in the auction for financial support contracts after the government ignored warnings that the offer was too low to reflect soaring costs.
The latest announcement, expected on Friday, could have brought an extra 5 gigawatts of power – enough to power 5m homes. Instead, consumers will miss out on savings of up to £1bn every year in annual energy usage, relying on more expensive gas instead.
One source said it would be a “major surprise” if even one offshore wind firm submitted a bid, meaning the government’s target of reaching 50GW of offshore wind by 2030 could be in jeopardy.
Offshore wind has grown rapidly over the past decade, helping to clean up energy supplies in markets such as the UK, where it currently supplies about 11% of the country’s electricity.
Jess Ralston, an energy analyst at the Energy and Climate Intelligence Unit, said: “The key point here is that even with inflation, offshore wind is still about a third cheaper than gas power stations with the price of gas set to remain higher than before the crisis.
“The more renewables, the less gas you have to buy. By failing to back offshore wind, the government has added around £1bn a year to energy bills in coming years. Combine this with the fudge on lifting the onshore wind ban, and the government is going backwards on easing the energy bill crisis.”
The announcement comes days after the government left onshore wind developers disappointed by changes to the planning laws, which have acted as a de facto ban on onshore wind in England.
While the tweaks will make it easier for onshore wind developers to apply for planning permission, they will still be at a disadvantage compared with any other infrastructure project.
Campaigners say developers may still be wary of investing in windfarms in England because they face greater hurdles compared with other infrastructure applications, or with windfarms in other countries.
Renewable-energy developers were required to submit sealed bids in the auction in the first half of August, before officials ranked the most competitive proposals over the second half of the month. Only the projects offering the lowest cost to energy-bill payers secure contracts.
The auction uses a mechanism known as contracts for difference, which guarantee consumers will pay a fixed price for the energy generated by the bidder. When wholesale prices are lower, subsidies added to customer bills top up the difference; when wholesale prices are higher, developers backpay the difference.
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In recent decades, the price of offshore wind power has fallen steeply. For this year’s auction, the government set a maximum price of £44 a MW hour, a similar level to the previous round.
But the maximum seems to have been too low to attract bids. Offshore wind developers face soaring construction costs, owing to rising inflation and higher borrowing costs.
This summer such inflationary pressures caused work to stop on a large-scale offshore windfarm off the Norfolk coast. The Swedish energy firm Vattenfall said it would cease working on the multibillion-pound Norfolk Boreas windfarm, designed to power the equivalent of 1.5m British homes, because its costs had increased by more than 40%, so it was no longer profitable.
At the time, industry experts told ministers that unless the government’s financing approach was changed to take into account the steep increase in costs, developers would be forced to scrap or delay their plans.
A spokesperson for the Department for Energy Security and Net Zero said: “We remain committed to further increasing our use of renewables, including offshore wind, to meet our net zero targets and decarbonise our electricity sector by 2035.”
