PA Consulting’s Alon Carmel, energy transition expert, comments on the results of the UK CFD renewables auction in an article in S&P Global.
The article explains that offshore wind prices are lower than in 2019, despite rising inflation and showcase a stark cost reduction from previous £150/MWh contracts in 2014.
The article continues that the overall rate of cost reduction is, however, slowing with Alon explaining that this is “partly due to a surge in the cost of equipment like turbines, driven by a tripling in global steel prices.” Adding that: "It's not just commodity prices, but also financing cost," with rising interest rates set to bump up the cost of bankrolling new projects. Bids are underpinned by assumptions about the future, which are now more difficult to make, with Alon remarking that: "The modeling for bid prices was more complex this year than normal."
Alon goes on to explain that "Price reductions seem to be stabilizing, which would be a good thing for the industry”.
To conclude, Alon asks: "Are these kinds of prices sustainable? Essentially, we'll have to wait and see”.