The UK’s recent Offshore Wind Round 4 seabed leasing represents a risk for raising costs of offshore wind due to the option fee that investors need to pay upfront for the right to develop projects, WindEurope said.
In its latest leasing round, the UK introduced a new bidding system that makes investors pay the option fee annually until securing the final planning permission, which they need to then bid in the Contracts for Difference (CfD) auction.
According to WindEurope, the option fees announced totaling GBP 879 million per year for the nearly 8 GW represent a very significant sum for developers.
The association emphasizes that demanding extra upfront payments only increases the costs of offshore wind, and just when it was becoming such a success for the UK, they risk making it more expensive, increasing energy bills and undermining its expansion and the jobs it should be creating.
“The UK has done a great job so far on offshore wind. They’ve used the right auction design with contracts-for-difference (CfDs). They‘re building up a strong supply chain creating thousands of jobs. They’ve reduced the costs for offshore wind hugely,” said Giles Dickson , WindEurope CEO.
“ But the way they have run this latest seabed leasing auction, they’re getting it badly wrong . Bidders shouldn’t have to pay large amounts for the right to develop offshore wind. And they’re making so little capacity available, that developers are having to pay huge amounts to win the auction. The developers will have to pass on these costs, so it’s a big new burden on consumers with no additional benefits.”
Similarly, RenewableUK welcomed the selection of preferred bidders in the Offshore Wind Leasing Round 4, but voiced its concern about how the high option fees could raise project costs for the developers and ultimately fall onto the consumers.
This represents the first time in Europe that a bidding process had set option fees for an offshore wind leasing process. In the UK, The Crown Estate previously had set fixed annual option fees.
The projects and bidders that were successful in the Offshore Wind Leasing Round 4 are RWE Renewables with two areas of 1,500 MW respectively, the consortium of Green Investment Group and Total with one area of 1,500 MW, the consortium of EnBW and BP with two areas of 1,500 MW each and Offshore Wind Limited with one area of 480 MW.