UK's Miliband warned: use offshore wind budget powers now or pay later

The UK’s crucial AR7 auction round can grab the capacity it needs to keep its offshore wind ambitions on track without loading costs on billpayers, claims a new study urging energy secretary Ed Miliband to use new powers available to him.

Britain could clear 8GW of offshore wind through AR7 while remaining cost neutral, based on a budget of £1.9bn ($2.5bn) and a strike price of £94.5/MWh, according to the research by consultancy Baringa.

That budget level is almost twice the £1.1bn allocated to fixed-bottom and floating offshore wind in an initial figure released in October, which, with some 25GW eligible to compete, was greeted with disappointment by the industry.

However, Miliband has new powers to look at bids into AR7 and – if he deems them to be value for money – increase the budget before winners are announced in the New Year.

The Baringa analysis reckons with the current budget likely to support 5GW, delaying the extra 3GW would come with pain later. Even when decreased subsidy payments are taken into account the gap would add £3/MWh to wholesale power prices and £362m to system costs in 2030, it predicts.

A 2022-style gas price shock would add an additional £2bn for billpayers annually compared to the situation if the extra 3GW of wind had been procured, said the research, which was carried out for developer Masdar.

An 8GW AR7 would also ease the pressures on subsequent rounds to meet the UK’s target of a mostly decarbonised power system by 2030, known as CP2030, which involves a target of at least 43GW in the water by then, up from about 17GW now.

“Using the secretary of state’s flexibility to allocate projects in the CfD AR7 beyond the current budget would allow to drive the above benefits for consumers and significantly close the gap to CP2030 targets.”

Miliband and the UK’s Labour government are currently juggling their ambitious net zero agenda with ferocious political pressure over the cost of energy, with opponents claiming the green agenda is simply unaffordable for consumers.

The Baringa research is not alone in reckoning Miliband can procure what offshore wind he needs and still balance the books.

The previous AR6 auction in 2024 allocated offshore wind at around £82/MWh.