The Carbon Trust explains why it has welcomed the announcement of the Contracts for Difference (CfD) Round 3 strike prices.
The strike prices of £39.65/MWh and £41.61 (2023/24 and 2024/25 delivery years) have shown the rapid cost reduction journey that has continued from CfD Round 2. Offshore wind is now lower than the Government Reference Prices, and very likely to be close to future wholesale electricity prices. Offshore wind will be supporting the UK achieving its renewable energy targets with these projects powering 7 million homes with cheap, clean energy.
We are now in a market where developers are no longer receiving subsidy payments from government, but they are given revenue certainty. The CfD regime has shown to provide vital long-term revenue certainty for developers, which is essential for a project’s bankability. Specifically, CfDs for offshore wind will help ensure the 30GW Sector Deal targets by 2030 can be realised.
A combination of technological innovation, investment in the supply chain, and healthy competition in the market have all played an important role. These factors are set to continue to influence the market, yielding further cost reductions in the UK and Europe.
In 2011, the UK government set a target of £100/MWh by 2020. Today’s strike prices are proof that the industry has managed to deliver cost reductions ahead of schedule, at over half the amount the UK government thought possible just a decade ago. With this increased renewable energy capacity, there must also be a collective focus on the technological developments required to support grid integration.
This is an important milestone, which will help move the UK offshore wind sector further towards the Committee on Climate Change’s recommendation of 75GW energy from wind by 2050, but there is still much to be done. We are looking forward to supporting our partners, the OWA offshore wind developers, in delivering these record-breaking projects.