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The UK's clean energy auction budget has surged by over 50% following the 2023 debacle, where no new offshore wind projects were secured. The green energy sector is now set to compete for a record-breaking £1.5bn through the upcoming Contract for Difference (CfD) auction. This budget increase aims to propel the UK towards its 2030 clean energy targets.
Energy Security and Net Zero Secretary Ed Miliband will announce that this year's auction budget - Allocation Round 6 (AR6) - has been boosted by more than £500m, a significant increase from the previous government's allocation in March. This enhancement marks a budget approximately seven times higher than Allocation Round 5, which had a detrimental effect on the UK's clean energy project pipeline due to the lack of offshore wind bids.
This expanded budget includes £1.1bn earmarked explicitly for offshore wind projects, surpassing the total budget of all previous auctions combined. Additionally, £185m is allocated for established technologies such as onshore wind and solar projects, marking a £65m increase from the previous budget. Furthermore, £270m is set aside for emerging technologies like floating offshore wind and tidal projects, an increase of £165m compared to the prior budget.
The announcement follows warnings from experts earlier this month, emphasizing the need for a heightened budget to meet the climate and clean energy targets for 2030.
"Last year's auction round was a catastrophe, with zero offshore wind secured, and delaying our move away from expensive fossil fuels to energy independence," said Miliband. "Instead, we are backing industry to build in Britain, with this year's auction getting its biggest budget yet.
"This will restore the UK as a global leader for green technologies and deliver the infrastructure we need to boost our energy independence, protect billpayers, and become a clean energy superpower."
The CfD scheme secures renewable energy contracts through competitive auctions, ensuring developers receive a guaranteed price—known as a strike price—for the clean electricity they produce. This arrangement gives the industry greater revenue certainty, enabling them to invest confidently, knowing they will receive a fixed price for their power and can access lower-cost capital.
The scheme's budget, funded through levies on power bills, bridges the gap between guaranteed prices and wholesale prices. Notably, when wholesale prices surpass strike prices, generators repay the difference to billpayers. This mechanism can lead to reduced energy bills for consumers as the cost of renewable energy declines. Additionally, increased renewable energy generation reduces gas imports, lowering energy bills.
Today, the government announced the maximum strike prices for the latest auction: offshore wind at £73/MWh, onshore wind at £64/MWh, solar at £61/MWh, floating offshore wind at £176/MWh, geothermal at £157/MWh, and tidal at £261/MWh.
"It is our mission for the UK to be more energy secure and to do that, we need more renewable energy projects connected to the grid and powering our homes," said Energy Minister Michael Shanks. "Increasing the budget by more than 50 percent will boost industry confidence in clean energy, attracting cutting-edge clean technologies to Britain as we accelerate to a decarbonised power sector by 2030."
AR6 is scheduled for August, with successful projects expected to be announced in September. Analysts anticipate that the increased budget could secure approximately 6GW of new capacity, a significant rise from the previous estimate of around 4GW. The energy industry has positively received this budget boost. However, there are concerns that even if the auction outperforms expectations, substantial additional capacity will be necessary in the coming years to meet the government's ambitious targets of 50GW of offshore wind capacity and a fully decarbonized power system by 2030.
Emma Pinchbeck, chief executive at trade body Energy UK, hailed the announcement as "a real boost" for the UK's clean energy ambitions. "The sooner we can get new wind and solar projects up and running, the sooner we can boost our energy independence with clean, homegrown power that reduces our reliance on expensive foreign gas and helps protect us from a repeat of the price shocks that have hit customers hard in recent years," she said. "Offshore wind is critical to hitting the government's 2030 target, and we know that the vast majority of this capacity must be delivered through this auction round and next year's. That remains a huge challenge, but this is certainly a big step in the right direction and another welcome demonstration of the government's ambitions.
"As the latest figures show, renewables supplied almost half of the UK's power last year, so we've already seen what can be achieved - not just through generating our own clean energy but also how such projects can bring investment, growth, and high-quality jobs to all parts of the country, boosting local economies and supply chains."
RenewableUK chief executive Dan McGrail said it was positive to see the government choosing to unlock more investment in renewable energy projects by increasing the budget. "These new wind and solar farms will improve our energy security, drive economic growth, support thousands of new green jobs, and ensure we continue to create a lowest cost electricity system for billpayers," he added. "This builds on a series of positive announcements from government which are increasing investor confidence in the UK, including ending the ban on onshore wind in England and approving new large-scale solar farms."
However, he also warned the auction would "not unlock investment in all shovel-ready projects, so the government will need to ensure that the next auction rounds focus on project delivery to ensure we achieve the Prime Minister's clean power mission and increase the confidence of investors in the UK's supply chain."
Related Energy & Climate Intelligence Unit (ECIU) analysis suggests that securing 5GW of new capacity—just half of the offshore wind in the CfD pipeline—could yield significant benefits. This capacity could save the average household between £30 and £40 annually in a future gas supply crunch. Additionally, it could reduce the UK's gas demand by around 10% in 2030 and cut gas imports by at least 12%.
"During the energy crisis, households saved around £20 from CfDs already in place," said Jess Ralston, head of energy at the ECIU. "CfDs act more as a price stabiliser, ensuring prices can't shoot up to super high levels. And with North Sea output in decline, irrespective of new drilling licences, every new wind farm means the UK is much less dependent on foreign energy imports. Wind farms make many times more of a difference to UK homegrown energy than does new drilling."
However, critics argue that the increased budget and higher strike prices could exert upward pressure on energy bills if fossil gas prices decline, leading to lower wholesale prices.
The increase in the CfD budget is part of a broader strategy by the new government to expedite clean energy development. This strategy includes lifting the 'de facto' ban on new onshore wind farms in England, approving three major solar projects in the East of England with a combined capacity of over 1.3GW, and launching an "unprecedented" partnership between the planned publicly-owned green energy developer Great British Energy and The Crown Estate. This partnership aims to unlock up to £60bn in private investment in clean power projects.
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