The UK’s offshore wind sector stands at a crossroads, with new analysis suggesting that doubling the budget for Allocation Round 7 (AR7) could be cost-neutral and drive significant economic benefits. According to a study by Baringa, commissioned by Masdar, increasing the budget from £900 million to £1.8 billion could result in around 8GW of capacity clearing the auction, set to be announced in mid-January. This is out of nearly 25GW that was eligible to enter the auction.
The analysis indicates that procuring capacity at a strike price of £94.50 per megawatt-hour would make the increased budget cost-neutral. Conversely, capping the budget at its current level could add £363 million to consumer bills annually. This figure is primarily derived from increased wholesale prices, but also includes wider socio-economic costs. These costs stem from the failure to secure approximately 4,500 jobs and the £6 billion to £9 billion gross value added that the additional capacity would have generated.
Baringa’s report warns that under a gas price shock scenario, these costs could rise to £2 billion per year. The report argues that using the Secretary of State’s flexibility to allocate projects in AR7 beyond the current budget would drive these benefits for consumers and significantly close the gap to the Clean Power 2030 target.
This analysis underscores the economic and environmental imperatives of increasing the budget for offshore wind. By doing so, the UK could accelerate its transition to clean energy, create jobs, and potentially save consumers money in the long run. The results of AR7, due in mid-January, will be crucial in shaping the future of the UK’s offshore wind sector and its broader energy landscape. The findings also highlight the need for policymakers to consider the wider socio-economic impacts of their decisions, not just the immediate budgetary implications. As the UK aims to meet its Clean Power 2030 target, the role of offshore wind will be pivotal, and the decisions made now could resonate for decades to come.