The latest renewables auction (AR7) is a big deal for several reasons. First, it is crucial for delivery of the government’s ‘Clean Power Mission’, which includes a target 43–50 GW of offshore wind by 2030. Second, the ‘strike prices’ from the auction will have a huge bearing on whether renewables are seen as good value when compared to alternative power generation technologies. Third, the government has placed a big emphasis on trying to maximise the UK jobs and investment brought about by the projects which win contracts.

The government has tried to do everything possible to attract international investors to the UK offshore wind market, including by lengthening the tenure of the Contracts for Difference (CfDs) for offshore wind to 20 years, widening eligibility criteria to projects without planning consent and ruling out fundamental changes to Great Britain’s (GB) wholesale electricity market, including zonal pricing. So, what were the results and do they deliver on the government’s objectives?

AR7 results for offshore wind
AR7 awarded 8.2 GW of fixed-bottom offshore wind contracts at a blended average price of £90.91/MWh in 2024 prices. There were also two smaller contracts awarded to floating offshore wind projects with a total capacity of just under 200 MW. The government increased the final budget to £1.79bn, almost double the original £900mn, to enable this level of deployment. The results for other technologies will be published in early February.

This was the largest ever volume of contracts awarded in any CfD auction to date. Clearing prices have risen since the low point reached in AR4, reflecting supply chain constraints and macroeconomic conditions. 

Do the contracts represent value for money? 
The price of offshore wind in the GB market has risen in recent years and these prices are well above the current day-ahead electricity price. So, with gas prices softening, using more gas-fired generation would be cheaper for consumers in the short term.

However, that is not really a fair comparison because, with ageing gas and nuclear plant due to come off the system over the next few years, we need new capacity in order to replace ageing gas and nuclear plants and to meet the expected rise in electricity demand in the 2030s due to AI and electrification of the economy.  

The results certainly look more favourable when considered against new build combined cycle gas turbine-powered plant (CCGTs), which would cost well in excess of £100/MWh. (The Department for Energy Security and Net Zero estimates a levelised cost of new build CCGTs at £147/MWh at a 30% load factor.) Yes, there are system costs to cope with for intermittent renewables, but there are also real constraints on the availability of new gas turbines, with lead times of five to seven years in many cases. New nuclear would take even longer and would not be cheaper than the offshore wind contracts awarded in AR7. (The equivalent price for Hinkley Point C is around £125/MWh, for example.)

Plus, this new domestic generation capacity will reduce dependence on imported gas and provide greater insurance against future gas price spikes, like we saw at the start of the Russia/Ukraine war.

Baringa and Aurora have estimated that the ‘break even’ price for offshore wind to be value for money is around £94/MWh. Against that metric, the AR7 results do look like reasonable value for money.

This new domestic generation capacity will reduce dependence on imported gas and provide greater insurance against future gas price spikes, like we saw at the start of the Russia/Ukraine war.

Implications for the government’s Clean Power Mission 
AR7 will bring significant new renewable generating capacity on to the system. However, some of that capacity won’t be online until 2031, and much of it will be dependent on the timely delivery of new grid infrastructure, which is being developed in parallel.

So, achieving the 43–50 GW target still looks like a stretch and, in all likelihood, we will be using more gas than the <5% of total power generation envisaged in the government’s Clean Power Plan published in December 2024.

But, with gas prices now lower, that is a sensible outcome for consumers given the need to keep bills down. From a consumer standpoint, we should certainly not be trying to deliver the 2030 Clean Power Mission at all costs.

Implications for security of supply and UK supply chain  
The UK currently has about 160 manufacturing facilities involved in the UK wind supply chain, and about 55,000 jobs involved in offshore and onshore wind, according to RenewableUK.

The ‘Clean Industry Bonus Scheme’ mandates minimum levels of spend in the UK supply chain per GW of deployment, and the government claims that AR7 will involve £22bn of investment and help support 7,000 skilled jobs.

This boost to UK supply chains will be welcome. However, the UK, like other countries, remains dependent on imports for certain key components. This is an increasingly tricky issue given the current geopolitical turbulence and trade barriers.

It remains to be seen if the UK can capture an even greater share of jobs and investment from this next wave of investment and protect this critical national infrastructure from cyber and other attacks.

Conclusion
Overall, the AR7 results for offshore wind represent a vote of confidence in the UK market and show that the CfD remains an attractive tool for attracting billions of pounds of inward investment. The government will feel vindicated in the decisions it took last year to shore up the confidence of international investors. For consumers, although offshore wind prices are rising, the results represent decent value for money when considered against other new build alternatives.

The challenge now is to ensure that the UK maximises the jobs, inward investment and domestic supply chain benefits from these contracts.

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.

See also this week’s news story on the AR7 auction results.

• Further reading: ‘Reflections on the 2024 Energy Institute Statistical Review’. Discover a wealth of data on the current state of play of the global energy transition.
• ‘Energy Policy Debate on future of gas focuses on current need, despite renewables growth’. What role will natural gas play in the UK’s future energy mix?