Big boost for offshore wind as DESNZ announces CfD AR7 results

Yesterday, the UK Government announced the offshore wind results for Allocation Round 7 (AR7), with 8.4GW across 8 projects secured after the initial budget was doubled from £900m to £1.8bn. This equates to around 50% of installed capacity for offshore wind.

This includes:

Six fixed bottom offshore wind farms (8.245 GW) – enough to power 9.7 million homes each year. Projects in England and Wales secured strike prices of £91.20/MWh, and £89.49/MWh in Scotland.

Two floating offshore wind farms (192.5 MW) have been agreed at £216.49/MWh.

What does this mean for bills?

The average clearing price is £91.20/MWh – an expected increase from the previous round (see chart below for more detail on historic prices).

Crucially, this is below £94/MWh, which recent analysis from Baringa and Aurora had shown to be the breakeven point for energy bills. These studies found that, as long as the strike price stays below this mark, there should be no additional costs to billpayers as a result of AR7.

This is due to the fact that increasing offshore wind deployment (a zero-marginal-cost technology) should lead to lower wholesale electricity prices, thereby offsetting the rising costs of CfD levies and keeping energy bills – both household and industry – effectively neutral through to 2035.

How did industry react?

Some critics have raised questions over why the strike price is ~10% higher than 2025 wholesale prices, with headlines stating that AR7 could add £1.8bn to bills. They are concerned that, should wholesale prices continue to fall, it will be difficult for the Government to promote renewables as a solution to lowering bills as they will increasingly have to pay the generator to make up the difference.

By contrast, others note that it is reasonable to pay a premium for reduced exposure to international gas and that comparing strike prices and wholesale prices is misleading: the former is the price at which generators will provide electricity to the UK for the length of the contract (20 years) while the latter is the final price, on a particular day, that billpayers pay for electricity.

The techUK view

Given the analysis from Baringa and Aurora, it is positive that the strike price falls below the point at which AR7 will start to increase bills (even if it is currently unclear whether this analysis applies to industry bills). Despite the fact that the strike price is above the 2025 wholesale price, it is ~40% lower than the equivalent gas power supply that would be needed to replace these wind turbines. The Government has clearly prioritised protecting consumers from potential fluctuations in the future over significantly lowering bills in the short term.

Overall, the primary impact of this auction on bills will be determined by the cost of grid upgrades, network charges, and curtailment – rather than the strike price. It will therefore be all the more vital for NESO and Ofgem to allocate capacity more efficiently, create stronger locational signals, and maximise consumer-led flexibility.

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