Anticipating AR 4: multiple factors likely to influence what could be world’s largest renewables auction
PA’s Alon Carmel, energy transition expert, comments on the upcoming UK CfD auction for renewables in The Offshore Wind Journal.
The article considers the key factors that will likely influence the outcome of the renewables auction.
On this, Alon says: “This is a pivotal auction for the UK industry … and will have interest for the global sector.” Adding, “It is likely to be the biggest allocation of renewable CfDs ever in the UK and potentially in the world, including – for the first time since 2015 – onshore wind and solar. It will also be the first time CfDs are allocated to floating offshore wind, opening up a whole new technology that will be critical for net zero.”
Alon continues: “It is also pivotal for a second reason – it is hopefully an opportunity for prices to stabilise and allow the industry to consolidate. It is a paradox that in this globally booming industry, the leading turbine manufacturers are loss-making.”
Adding to this, Alon also notes how the CfD scheme has proven successful at decreasing prices for consumers, acting as a buffer against high gas prices, but this may not be sustainable in the future.
Further to this, Alon expresses that: “This is natural in an industry that is growing and innovating technologically at the pace renewables has. But at some point, the entire value chain needs to be able to earn a reasonable return on these massive infrastructure projects – or the sector will not be able to accelerate towards our 2030 and net-zero targets.”
Alon notes that this is indicative of a maturing industry if prices remain the same or increase over the years to mitigate inflation in the input costs for turbines and foundations and increasing financing costs.
He adds: “We saw that happen in RESS 2 in Ireland recently, and historically we’ve seen this happen in Germany and in Brazil who have held onshore wind auctions for many years.
“The Government should not see this as a failure in any way, but rather as success – that the industry is more established and ready to scale up towards net zero.”
The articles continue by discussing possible budget increases.
Alon concludes by saying that he believes the £24M budget for floating could see allocations of between 55MW and 105MW, if the clearing price is between £80/MWh and £122/MWh, the latter price is the administrative strike price for floating technology.