Cost of renewable energy plummets as extra capacity delivered

The awards were made through the second contracts for difference (CfD) auction and are worth a total of £176 million per year. However, costs have dropped significantly since the first auction in 2015, with the cost of offshore wind falling by nearly 50% to just £57.50 per megawatt-hour.

“Today's announcement sees the offshore wind sector in particular take a significant step forward with some truly ground breaking pricing which would appear to support fully the campaign to reduce the costs of offshore wind,” said energy law expert Ian McCarlie of Pinsent Masons, the law firm behind Out-Law.com.

Energy law expert Gareth Phillips, also of Pinsent Masons, said the prices agreed reflected continued reduction of costs in recent years.

“Certainty of ongoing government support for this technology has enabled significant confidence and investment in the supply chain, which has assisted cost reduction and wider economic stimulation,” Phillips said.

“This model can and should be followed for other marine renewable technologies, including tidal barrages and lagoons. There is a clear track record now for early subsidy support being rewarded through a lower cost of energy later in the life cycle of renewable energy projects,” Phillips said.

Advanced conversion technology (ACT) projects won the bulk of the contracts, with five projects in England and one in Wales receiving government subsidies. In England, two offshore wind farms won approval as well as one in Scotland. The final two projects to be allocated were biomass plants.

The projects will begin delivering energy in 2021/22 or 2022/23. The government said capacity delivered in the CfD auction cost up to £528m per year less than it would have in the absence of competition.

McCarlie said the projects needed to be delivered in a way that met their potential.

“Developers will need to be confident that contactors and financiers will be able to deliver these strategically important projects where surely innovation, collaboration and driving through efficiencies will be central themes,” McCarlie said.

The allocation of the projects follows the release of the government's industrial strategy earlier this year. The strategy includes a pledge to increase the amount of low-carbon energy generated in the UK.

Last month the government gave the go-ahead for an offshore wind farm project in East Anglia which could provide up to 1,800 megawatts of output capacity. That project will go through a future CfD process.