Government announces £1.08bn budget for offshore wind power support

Developers are being offered an initial budget of £1.08 billion annually in support for new offshore wind farms.

The Government unveiled the cash pot for the next renewable electricity auction, which sees developers bid to secure a fixed price they can charge for each megawatt hour (MWh) of power they generate.

The budget aims to spur on investment in clean power capacity as part of wider ambitions to decarbonise the UK’s electricity grid, reduce household bills and boost economic growth.

Ministers increased the maximum amount companies could charge per MWh of electricity this year as inflation and supply chain bottlenecks continue to drive up costs.

However, it is widely expected that bids from offshore wind developers will come in well below these levels.

Now it has announced two pots for offshore wind power – one with an annual budget of £900 million for offshore wind projects and another with an annual budget of £180 million for floating offshore wind projects delivered from 2028.

Energy minister Michael Shanks said: “This auction is another step towards delivering the clean power this country needs to end our reliance on volatile global gas prices, ensuring our energy security and bringing down bills for good.

“Our competitive new auction process will allow us to buy the right amount of clean power at the right price on behalf of the British people, so we can take back control of our energy.”

The budget estimates the extra amount that could be needed to ensure the new wind farms are paid their guaranteed price for electricity, if overall electricity prices dip below it.

The cost of the support will come out of energy bills rather than from general taxation.

But money will also be returned to customers when overall electricity prices rise above this guaranteed fixed price, as they did during the energy crisis.

Offshore wind developers will be able to submit a sealed bid for their fixed price between November 11 and 17.

The Government will select the projects asking for the lowest fixed price, before announcing the results in January.

The budget unveiled on Monday is the initial offering, officials said.

This means Energy Secretary Ed Miliband may increase the cash pot over the coming weeks, with the Treasury’s green light, if the initial amount does not cover further projects that could provide value for money.

The total budget for green electricity – which will also include sources such as solar and wave power – will be unveiled later this year, although wind makes up the lion’s share, it is understood.

Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, said the offshore wind budget is “highly unlikely” to be added to bills.

“It’s based on a set of outdated estimates for future power prices that are very different to expert forecasts,” she said.

“The North Sea oil and gas industry has been shedding jobs for decades, so speeding up the building of offshore wind is going to be needed to provide job security for those continuing to leave the fossil fuel industry.

“It’s also crucial that we invest in the grid after decades of under-investment so that we can maximise the benefits of renewables.

“Every bit of free wind and sun power that we harness means we need to buy less foreign gas from abroad, boosting our energy security.”

Ana Musat, RenewableUK’s executive director of policy and engagement, said the budget would only procure about a quarter of the new offshore wind capacity eligible for this auction, which is more than 20 gigawatts.

“Given the amount of competition in this year’s auction, we expect to see competitively priced bids, so the Government should adjust the budget to maximise procurement, which could attract up to £53 billion in private investment in the UK economy,” she added.

Campaigners welcomed the budget, with Doug Parr, Greenpeace’s UK policy director, saying: “This budget is a significant step forward on the road to greater energy security, more green jobs and more stable, cheaper electricity.

“We can’t rely on dwindling fossil fuel reserves in the North Sea or new expensive gas plants that could take nearly a decade to build.

“Homegrown renewables have helped to lower wholesale power prices by a quarter last year and should form the backbone of a clean, affordable energy system that shields bill payers from volatile gas markets.

“However, ministers will really need to up their game in the next renewables auction round if the Government’s own promises on a clean power system are going to be met.”

Experts have said Mr Miliband needs to commission 8.4 GW of new offshore wind capacity to stay on track to meet the Government’s target of removing almost all fossil fuels from the UK’s electricity supply by 2030.

Labour came into Government pledging “clean power by 2030”, with almost all of Britain’s electricity coming from clean sources such as renewables and nuclear by the end of the decade, as part of efforts to secure energy supplies, curb bills and tackle climate change.

Last week, Downing Street denied reports that Prime Minister Sir Keir Starmer has been preparing to miss the 2030 goal and that Mr Miliband is willing to commission fewer renewables projects in the coming weeks in order to keep bills down.

It comes as the energy debate grows increasingly fractured, with the Conservatives and Reform UK pledging to ditch “expensive” net zero policies and the Climate Change Act under which targets to cut emissions to zero overall by 2050 are set, and maximise extraction of oil and gas from the North Sea.