Offshore wind plays a major role in the future of the UK’s power system. This report considers changes to policy design which could accelerate the deployment of projects to meet 2030 decarbonisation goals and reduce cost to consumers by providing greater certainty to developers and the supply chain. The report focuses mainly on potential changes to the way Contracts for Difference (CfDs) are allocated to projects, but also considers arrangements for seabed leasing, environmental permitting and consent, and expansion and management of the grid.
CfDs have been the primary policy tool used in the UK over the past decade to support growth and cost-reduction of offshore wind, taking it from a relatively expensive emerging technology to a mature industry able to deliver cost-competitive electricity at scale. As a result, the principal benefit of CfDs can now be seen as reducing costs to consumers by reducing market price risks which enables projects to be developed with a lower cost of capital.
The options for modifying CfD allocation start with relatively simple near-term actions that can be taken to accelerate the estimated 15GW pipeline of shovel-ready projects that have already gained seabed leases and agreed grid connections, and now just await CfD contracts. For these projects, the biggest opportunity to accelerate deployment is to provide a greater degree of certainty over the volume of contracts that government intends to commission over the next 3 rounds of CfD auctions.
In the medium term, there are opportunities to accelerate the development of around 50GW of offshore wind currently in the planning phase. For this cohort of projects, the most pressing need is to accelerate the build-out of transmission infrastructure and improve certainty over grid connection dates. Design changes to the CfD could also contribute to the acceleration of project development and a reduction in the pass-through of costs to consumers.
More significant changes to the CfD process will need to be considered for the new cohort of projects that will start to be planned as part of the 20-30GW of new rounds of seabed leasing announced by The Crown Estate. This new round of leasing will take a more strategic approach to site selection by integrating consideration of environmental impacts and grid connectivity which could considerably reduce project risks and shorten development times.
The paper draws on previous research together with two stakeholder workshops held under Chatham House rules on the 17 May and 7 June 2024, co-convened and led by UKERC and the Royal Academy of Engineering.