UK auction reveals offshore wind cheaper than new gas

Carbon Brief explains the details behind yesterday’s surprise announcement by the UK government that it had awarded awarded contracts worth £176m to 11 low-carbon electricity schemes, with offshore wind the big winner:

“Two offshore wind schemes won contracts at record-lows of £57.50 per megawatt hour (MWh). This puts them among the cheapest new sources of electricity generation in the UK, joining onshore wind and solar, with all three cheaper than new gas, according to government projections.”

“By the mid-2020s, renewables will be cheaper than new gas even after accounting for the costs of integrating them into the electricity grid.”

The auction result is likely to challenge preconceptions about renewable power. For example, Prof Dieter Helm, who is leading a government review on costs of energy, has said offshore windfarms will “never” be economic, clearly this view is unfounded.

It might also increase pressure on the government to run auctions for onshore wind and solar, which are likely to be even cheaper. Some suggest auctions could secure 1GW of onshore wind for £46/MWh, which would be effectively subsidy-free. Meanwhile, Cornwall Energy says some onshore schemes could offer CfD bids as low as £40/MWh.

Securing subsidy-free renewables would help fill the gap in electricity supplies, which is expected to open up in the 2020s as the UK’s remaining coal plants close, old nuclear retires and more stringent carbon targets start to bite.