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The government has increased the maximum price it is prepared to guarantee to companies generating electricity from new wind farms.
This move comes as ministers strive to meet ambitious targets to reduce household energy bills and establish an electricity grid almost entirely free of fossil fuels by 2030.
The Department for Energy Security and Net Zero (DESNZ) released these details ahead of the upcoming auction for government-backed contracts.
The auction, scheduled to open in August, represents one of the final opportunities to commission projects in time to achieve the government’s Clean Power target by 2030.
However, the Conservative Party has described the new prices for offshore wind as “eye-watering.”
The government has clarified that these prices represent the maximum guaranteed amount, with companies expected to submit lower bids to secure contracts.
A spokesperson for Energy Secretary Ed Miliband stated, “The auction will reveal the true price, just as it did last year, where the auction cleared at significantly lower prices.”
Each year, companies seeking to develop renewable energy projects participate in bidding for government-backed contracts.
The government agrees to pay a fixed price for the electricity generated over a defined period, now extending up to 20 years, capped at a maximum price known as the Administrative Strike Price (ASP).
Firms submit bids below the ASP to win project contracts, and the government subsequently establishes a new guaranteed price, referred to as the clearing price, based on these bids.
If electricity market prices exceed the set price, companies reimburse the excess to energy suppliers, with the anticipation of reducing consumer bills.
Conversely, if prices fall below the guaranteed price, energy suppliers – and ultimately, customers – pay the companies the difference.
This year, the maximum guaranteed price for offshore wind has been set at £113 per megawatt-hour, an increase from £102 in 2024.
Floating offshore wind, a more nascent technology, commands a higher price of £271/MWh, up from £245.
Onshore wind has experienced a more modest increase, rising from £89/MWh to £92, while the price for solar energy has decreased to £75/MWh from £85/MWh.
Conservative Shadow Energy Secretary Claire Coutinho commented: “These are eye-watering prices – the highest in a decade and way above the average cost of electricity last year. And this is before the hidden costs of grid, storage, and wasted wind, which all end up on our energy bills.”
She further asserted that Ed Miliband was prioritizing “Net zero zealotry above the economy or the cost of living.”
The government contends that transitioning to renewable energy sources will shield consumers from volatile gas prices and sustainably reduce energy bills.
Johnny Gowdy, from the not-for-profit organization Regen, which advises on net-zero transitions, explained that the ASP serves to “set the starting point for the auction; with competitive bids, we would expect the actual auction strike price to be much lower.”
“There is also a trade-off between volume and price. If the bid prices are high, then the government will procure less capacity. If the price is low, then the government will be able to buy more capacity.”
He acknowledges that the cost of producing offshore wind “probably has risen over the past couple of years,” but adds, “we will have to wait and see the auction outcome” to determine the extent of the increase.
Previous auctions have yielded clearing prices lower than the maximum offered.
Setting the maximum price too low carries inherent risks.
In 2023, under the Conservative government, no offshore wind developers submitted bids for any projects, citing a lack of viability at the offered price.
The government has implemented changes to the system with the intention of attracting more bids and fostering competition.
Notably, this year marks the first time that offshore wind projects lacking full planning permission will be eligible to apply for contracts.
Furthermore, contract lengths for wind and solar projects have been extended from 15 to 20 years, and the Energy Secretary will have the opportunity to review developer bids before finalizing the overall budget.
A DESNZ spokesperson stated that these reforms would “enable a competitive auction that secures the best possible price for consumers while securing the clean energy we need to get us off the fossil fuel rollercoaster.”
Eligible residents can apply for funding to make their homes warmer and cheaper to heat.
The facility near Culham Campus was rejected by South Oxfordshire District Council last year.
The farm would be made up of several blocks of development between Darlington and Stockton.
A BBC investigation finds people using energy networks often pay more than regular customers.
The developer appeals to the Planning Inspectorate after original plans were thrown out.
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