Britain's wind auction lowered the price of contracted power
The third Contracts for Difference auction offered a large offshore wind pipeline at lower strike prices. The investment question shifted to delivering projects and dependable output within that revenue envelope.
On 20 September 2019, Britain published the results of its third Contracts for Difference allocation round. Twelve renewable energy projects had been offered contracts, with offshore wind accounting for most of the awarded capacity. The headline offshore strike price reached £39.65 per megawatt-hour for the 2023/24 delivery year, expressed in 2012 prices. The figures indicated how far competitive bidding had changed the revenue expectations for new generation.
For energy startups, a low auction price set a demanding budget for developers arranging finance, construction, operations and power sales. It did not establish demand for a particular supplier or prove that every component had become cheaper. That distinction made the results useful for examining where new technology might earn a budget: in reducing delivery risk or improving output over the life of the contract.
The capacity was concentrated offshore
The results table listed 5,466 megawatts of offshore wind, 275.22 megawatts of remote island wind and 33.6 megawatts of advanced conversion technologies. Together these amounted to 5,774.82 megawatts of offered capacity. The government described the round as around six gigawatts, but the technology breakdown was more informative for a supplier deciding where to focus its product and sales effort.
| Period or category | MW |
|---|---|
| Offshore wind | |
| Remote island wind | |
| Advanced conversion |
Offered generating capacity in Great Britain, by technology from Table E. The subsequent revision left these award figures unchanged. MW measures power capacity, not annual electricity output.
Source1
Large offshore entries included three Dogger Bank projects at 1,200 megawatts each and Sofia at 1,400 megawatts. The table also cautioned that specified large projects would be built in phases and that the listed delivery year referred to phase one. An investor could not translate the headline pipeline into a single date on which every turbine would be producing electricity.
The government republished the results on 11 October to correct a minor notional budget calculation and clarify price bases in several tables; it said the other results remained accurate as originally published. The capacity chart uses those unchanged award figures. It measures capacity offered under the round, rather than completed wind farms or electricity generated.
The contract stabilised a price relationship
The government's explanation described Contracts for Difference as agreements lasting 15 years between generators and the Low Carbon Contracts Company. Generators would continue selling their electricity into the wholesale market. When the market reference price fell below the strike price, the contract provided a top-up; when the reference price exceeded the strike price, the generator paid back the difference. This reduced a central source of revenue uncertainty for projects requiring substantial capital.
The mechanism did not guarantee that construction would finish on time, that equipment would remain available or that forecast wind conditions would occur. It also did not make the strike price a complete description of a plant's cost. A winning bid reflected a developer's assumptions about investment, financing, operations and the contractual framework over many years.
The announcement expected projects to come online below market prices without additional subsidy on bills. That was an expectation based on the market outlook used then, not an observed lifetime outcome. Investment analysis therefore needed to allow for payments in either direction as wholesale prices changed.
Lower bids sharpened the value of reliability
A supplier selling inspection software, condition monitoring or power conversion equipment needed to connect its performance to a developer's economics. Detecting a fault early could help plan maintenance during a suitable access window. More accurate construction information could reduce uncertainty in scheduling vessels or specialist teams. These were specific possible sources of value, with benefits that depended on a project's design and operating conditions.
| Period or category | £/MWh · 2012 prices |
|---|---|
| 2023/24 administrative price | |
| 2023/24 clearing price | |
| 2024/25 administrative price | |
| 2024/25 clearing price |
Offshore wind results from the revised Table F for the third allocation round. The labels identify contractual delivery years within the same auction. BEIS reported savings of 29% and 21% against the corresponding administrative prices. The administrative and auction clearing strike prices are expressed in 2012 pounds; they do not measure wholesale prices, retail bills or complete generation costs.
Source1
The proof required more than a successful demonstration. Offshore equipment faces demanding access, environmental and service requirements. A technology that needs frequent intervention might move costs from one budget to another. A credible commercial case therefore compared the proposed system with the existing maintenance or engineering process, including installation, training, false alarms and the cost of resolving failures.
For suppliers funded by venture capital, selling into the pipeline could also create a cash timing problem. Engineering qualification and procurement decisions could precede significant equipment deliveries by a long period. The financing plan needed to distinguish trials, framework agreements and firm project orders. A large market headline did not resolve the cost of reaching the first repeatable deployment.
Generation growth created adjacent constraints
More wind capacity also depended on connections, power systems and the ability to operate within grid requirements. The auction awarded generation contracts; it was not a procurement programme for every storage, network or control technology that might serve the broader system. A startup in those adjacent markets needed to identify its own customer, payment mechanism and project approval process.
The round provided evidence of a substantial development pipeline and a demanding price environment. It did not establish the eventual profitability of every project or supplier. Analysis of an individual company needed to follow the contract into the work it implied: who needed a new capability, when they could buy it and what reliable delivery would be worth to them.
Investment implications
- Awarded capacity described contract offers, with construction and commissioning still ahead.
- The published strike prices used 2012 pounds and should not be compared directly with nominal electricity prices.
- Lower contracted revenues increase the importance of credible performance, maintenance and construction assumptions.
- A large generation pipeline creates potential demand for suppliers, but qualification and buying authority remain specific to each project.
Sources
- Contracts for Difference Allocation Round 3: results, published 20 September 2019 and revised 11 October 2019 (opens in a new tab)
Department for Business, Energy & Industrial Strategy
- Clean energy to power over seven million homes by 2025 at record low prices (opens in a new tab)
Department for Business, Energy & Industrial Strategy
- Contracts for Difference Allocation Round 3: results and revision notice (opens in a new tab)
Department for Business, Energy & Industrial Strategy
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