The UK government has raised the maximum prices it is willing to guarantee developers of wind power projects in a bid to reinvigorate investment in renewable energy and keep its ambitious decarbonization targets on track. The increase, announced on July 23rd, underscores the challenges faced by clean energy developers contending with inflation, rising interest rates, and strained supply chains.
New Administrative Strike Prices
Under the revised terms for the 2025 round of the Contracts for Difference (CfD) auction scheme — the UK’s primary mechanism for backing renewable power projects — the administrative strike price (ASP) for offshore wind has been raised to £113 per megawatt-hour (MWh), up from £102/MWh in 2024. Onshore wind will now see a ceiling of £92/MWh, up from £89/MWh.
The CfD scheme provides developers with long-term price certainty by guaranteeing a minimum price for electricity generated. If market prices fall below the agreed rate, the government compensates the difference through a levy on consumer bills. However, if market prices exceed the strike price, developers must pay back the surplus.
While the ASP represents the upper limit of potential bids, actual clearing prices are typically lower as developers compete for contracts. Officials at the Department for Energy Security and Net Zero emphasized that the ASP “is not a prediction of price — the auction will reveal the true price.”
A Big Bet on Offshore Wind
This year’s auction round is expected to be the largest ever, according to ministers, as the UK races to deliver its clean energy commitments. Offshore wind — central to the UK’s ambition of decarbonizing its power system by 2030 — is a particular focus, with the country aiming to triple its offshore wind capacity from around 15 GW today to between 43 and 50 GW by the end of the decade.
To make investments more appealing, the government had already extended the CfD contract length from 15 years to 20 years in reforms unveiled on July 15, hoping that longer revenue certainty would allow developers to accept lower guaranteed prices.
The updated rules also grant the Energy Secretary the ability to review developer bids before finalizing auction budgets, a move designed to increase flexibility and improve procurement outcomes.
“These reforms will give developers the certainty they need to build in Britain,” said Energy Secretary Ed Miliband, highlighting the government’s efforts to attract global investment and deliver thousands of jobs across the UK’s green energy supply chain.
Wind Power Under Pressure
The offshore and onshore wind sectors have been rocked by cost inflation in recent years. Developers have warned that without higher strike prices, many planned projects would be unviable. The decision to raise price ceilings is a response to those economic realities.
According to the government, the new price caps will be “less relevant” this year due to changes in how auctions are conducted, but critics argue that the higher ASPs signal a government overly committed to rigid decarbonization timelines.
Opposition energy spokesperson Claire Coutinho described the strike price adjustments as “gruesome,” arguing that they reflect an overly aggressive push to meet Labour’s 2030 targets “no matter the cost.”
During its election campaign, Labour pledged to cut household energy bills by £300 per year by transitioning away from fossil fuels. Yet, with wholesale power prices currently hovering between £70–75/MWh, these elevated strike prices have the potential to add upward pressure on bills, depending on future market dynamics.
By Charles Kennedy for Oilprice.com
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