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Analysis: Record-low price for UK offshore wind cheaper than existing gas plants by 2023

20 September 2019

By Simon Evans

CARBON BRIEFThe UK is to get its first subsidy-free offshore windfarms after the government awarded contracts today for nearly 6 gigawatts (GW) of capacity, at prices below those it expects on the open market.

The prices are so low that the windfarms could generate electricity more cheaply than existing gas-fired power stations as early as 2023, Carbon Brief analysis suggests. Even last year, renewables had not been expected to reach this tipping point until around 2030.

 

The 12 schemes awarded contracts today include six offshore windfarms, totalling 5.5GW, and 0.3GW of onshore windfarms on remote Scottish islands. Together, they are expected to produce some 29 terawatt hours (TWh) of electricity each year, equal to 9% of the UK’s total output in 2018 and sufficient to power a quarter of the country’s 26m homes.

 

The record-low prices will see projects due to start operating in 2023/24 coming in at £39.65/MWh (in 2012 prices, £44/MWh adjusted for inflation) and those for 2024/25 at £41.61/MWh. These are some £8-9/MWh below the government’s “reference price”, the level it expects to see for electricity on the open market in each year.

 

If the market follows the government’s reference price expectations, then the new renewable schemes will pay more than £600m towards consumer bills by 2027, instead of receiving a subsidy.

Cheaper than gas

Today’s auction is the third to award contracts for difference (CfDs) to support low-carbon electricity supplies. Winning bidders are paid a fixed “strike price” for the electricity they generate over the course of 15 years and can then continue to operate on the open market.

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