Green power is coming online at record rates but not quickly enough to meet climate objectives. A rethink of how clean energy projects are auctioned off is now happening so that more potential projects can be put on the books.
The United Kingdom is gradually converting its part of the North Sea into a massive green power plant. Offshore wind projects abound and the country is pinning its clean power hopes on even more turbines out at sea.
But in recent years, the UK’s green ambitions have at times fallen short. The government holds regular auctions for clean power and doles out lucrative contracts for difference.
These are financial tools that guarantee a project a certain price window. If the price dips, the operator gets compensated, if it spikes, the profits are paid back to the consumer.
Back in 2023, offshore wind received no bids because the power price was too low for project developers to make a business case work. That was widely decried as a massive error on the part of the government of the time.
In order to prevent a repeat of that failure and keep the UK on track to potentially completely decarbonise its power grid by 2030, the current Labour government made changes to how the system works.
Top of the reform list was to offer 20 year long CfDs rather than 15 year long contracts. The idea is that the extra five years will add enough sweetener to the deal to get bidders on board.
Another big change is that the amount of money available to spend on contracts is not strictly capped as it was under the old system.
This week, the government said it will allocate just over £1 billion, which many in the industry says is simply too low to make that 2030 target a reality. But this isn’t the end of the budget story.
Projects will bid in November, then the government can have a look at which projects want to move forward and if the budget is not enough to contract all of the viable capacity it wants on the books, the budget can be topped up. Final results are due in January.
At a time when the government is trying to keep the public on board with green energy amid high energy prices, you could argue that this strategy is perhaps the wisest approach.
European rethinks
Germany and the Netherlands are also big wind players. Their North Sea and Baltic coastlines make their waters ideally suited to wind but there is trouble afoot.
A few years back, when the offshore market was firing on all cylinders, it was so competitive that the Dutch government didn’t need to offer any subsidies. It was purely up to the project developers to make it work.
But given how the global context has evolved with supply chain woes and high interest rates, the capital-intensive projects are no longer viable without some form of support, according to the industry.
Only recently, an open tender for a 1 gigawatt farm received no bids whatsoever, because the sector knows what is coming.
The government is going to start offering CfDs, once the finer details of how the system will work are actually figured out, and will in the meantime offer more than €1 billion in support measures.
It’s a similar tale in Germany, where the authorities are working out how to ditch their negative bidding model, which essentially only rewarded project developers that could build on the cheap. Now, nobody can build on the cheap so no one is building.
The wind industry has been calling for these decisions to be made for some time, whether it is now too late for the changes to have an impact on nearer term climate targets like the EU’s clean energy rules for 2030, remains to be seen.
More than money
France is implementing non-price criteria in its renewable energy bidding, in order to weed out which projects are truly sustainable, not just value for money.
These criteria include biodiversity impact, cybersecurity resilience, energy system integration and the project developer’s track record for completing works in good time.
The system has yielded mixed results so far: France’s 7th auction round flopped with no bids, yet the latest was indeed successful. TotalEnergies will build a 1.5 gigawatt farm off the Normandy coast.
As part of the winning bid, the turbines and cables will be made in Europe and at least 10% of the project will be fulfilled using services and equipment provided by SMEs.
France is playing catchup on wind but its way of auctioning off clean power could yet prove to be influential in convincing other countries how to do it
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