Offshore wind

The UK is the second largest offshore wind (OSW) market in the world. The British Energy Security Strategy (BESS), published in April 2022, set the ambition to achieve up to 50 gigawatts (GW) of offshore wind by 2030, including 5 GW from innovative floating technology. This ambition could support up to 90,000 direct and indirect jobs in the UK and is part of a wider £100 billion private investment required to meet the UK’s net zero goal.

The UK currently has 13.9 GW of offshore wind fully commissioned, a fourfold increase on capacity installed in 2012. There is also a total project pipeline of around 77 GW across 80 projects that are either in construction, consented, in development and planned in future seabed leasing auctions.

Commercial maturity

The UK’s offshore wind market is underpinned by a strong pipeline of projects and seabed lease auctions. This includes 27.8 GW of floating and fixed bottom wind projects awarded by Crown Estate Scotland in the recent ScotWind leasing round.

Contracts for Difference (CfD) is the UK government’s flagship scheme for procuring high volumes of clean energy at the lowest cost to consumers. CfDs incentivise investment in renewable energy and reduce the cost of capital by providing developers with protection from volatile wholesale electricity prices in a 15 year private law contract. They are the bedrock of OSW project development in the UK.

BESS established the Offshore Wind Acceleration Taskforce, which focuses on streamlining the consenting process, including planning reforms to cut the approval time for new offshore wind farms from 4 years to one. The taskforce has also been considering how we ensure the UK and European countries have the manufacturing capability in place to meet our collective ambition of 165 GW by 2030.

This work goes hand in hand with the Offshore Wind Sector Deal, announced in 2019, where industry committed to 60% of local content in offshore wind projects in the UK by 2030.

In the 2023 Spring Budget, the UK government introduced a series of economy-wide capital allowance measures from which offshore wind projects can benefit. For example, we announced that companies can claim 100% capital allowances on plant and machinery investment until March 2026. The 50% first year allowances for special rate (including long-life) assets was also introduced, which will continue until March 2026.

The government is exploring the introduction of non-price factors into the CfD auction allocation process. This is based on the Skidmore Review and recommendations from the Offshore Wind Acceleration Taskforce. We are seeking views in a ‘call for evidence’ on whether potential reforms to value factors other than price in CfD auctions could help accelerate renewable energy deployment and address potential energy security issues.

If appropriate changes to the CfD scheme have been identified following this ‘call for evidence’, the government would consult on more detailed proposals.

Seabed leasing rounds

The Crown Estate is responsible for the seabed in England, Northern Ireland, and Wales, while the Crown Estate Scotland owns and manages the seabed in Scottish territorial waters and adjacent areas of the UK’s Exclusive Economic Zone.

These organisations run periodic leasing rounds, the latest of which saw c.8 GW awarded by The Crown Estate through leasing Round 4, and 27.8 GW awarded by Crown Estate Scotland through ScotWind. The Innovation and Targeted Oil and Gas (INTOG) offshore leasing has awarded up to 5.5 GW for projects connected to oil and gas infrastructure or supporting innovation and technical opportunities.

We expect the Celtic Sea floating wind leasing round to take place in summer 2023, confirming The Crown Estate’s ambition to unlock up to 4 GW of new clean energy capacity in England and Wales and help establish a new industrial sector for the UK.

Opportunity highlights

Annual auctions and allocation round 5

In February 2022, the government announced that it would be increasing the frequency of Contracts for Difference (CfD) auctions to every year rather than every 2 years.

Increasing the frequency of auctions is expected to give more projects the opportunity to enter the pipeline, thereby accelerating the decarbonisation of UK energy, and boosting the benefits to the UK supply chain. Allocation Round 5 launched on 30 March 2023 and the application window closed on 24th April 2023. Winners will be announced in the summer.

Allocation round 4

The UK’s CfD Allocation Round 4 delivered record capacity, securing nearly 7 GW of offshore wind in July 2022. The price per megawatt-hour (MWh) of offshore wind in this round was £37.35 (2012 prices), which means it has fallen by almost 70% since the first CfD auction in 2015. This makes offshore wind cheaper than onshore wind, solar and tidal energy.

Allocation Round 4 included the world’s single largest offshore wind farm, Hornsea Three. Other winners include:

• Inch Cape (1.08 GW) – developed by Red Rock Power
• East Anglia Three (1.37 GW) – developed by Scottish Power
• Norfolk Boreas (1.4 GW) – developed by Vattenfall
• Hornsea Three (2.85 GW) – developed by Ørsted
• Moray West (0.294 GW) – developed Ocean Winds

It also included the first CfD to be awarded to a floating offshore wind project, Hexicon’s TwinHub project (32 megawatts (MW)) at a strike price of £87.30/MWh.

Celtic Sea leasing round

The Crown Estate refined the areas of search in October 2022 for its floating wind leasing in the Celtic Sea (the area of ocean situated off the coast of Cornwall, between Wales and Ireland). The areas will be further refined over the coming months and it is anticipated that seabed rights will be awarded in 2023.

The Crown Estate is accelerating the leasing process where possible to ensure the delivery of up to 4GW of floating offshore wind projects in the near term. This would provide enough clean energy to power approximately 4 million homes.

ScotWind

Crown Estate Scotland’s two ScotWind leasing rounds saw 27.6 GW awarded across 20 projects (14 of which were floating, up to 17.8 GW), demonstrating the UK’s level ambition and Scotland’s significant appetite for investment to develop to local economy.

The scale of the floating wind projects in the ScotWind leasing round will make Scotland the largest market in the world for this emerging technology and offers new investment opportunities in the region and the rest of the UK.

Innovation and targeted oil and gas (INTOG) leasing round

The INTOG leasing round, operated by Crown Estate Scotland, is a mechanism through which developers will apply for rights to build offshore wind farms to provide low-carbon electricity. These offshore wind farms will subsequently power oil and gas installations and help decarbonise the sector. INTOG also provides an opportunity to enable small scale (less than 100 MW) innovation projects, including alternative outputs like hydrogen.

Applications closed on 18 November 2022 and 13 projects were offered exclusivity agreements on 24 March 2023. This is a total capacity of 5.499 GW.

Floating Offshore Wind Investment Scheme (FLOWMIS)

The UK government recognises the potential of floating wind technology, as it opens access to new, deeper areas of the seabed. We expect floating offshore wind to play a key role in our energy mix as we move toward net zero and secure the UK’s energy supply.

The UK is already a world leader in floating offshore wind with 78 MW operational, which is more installed capacity than any other country. To build on the UK’s world-leading position and achieve our 5 GW ambition, the Department for Energy Security and Net Zero launched FLOWMIS on 30 March 2023. This scheme is worth up to £160 million and it will support the investment needed in port infrastructure to deploy the large-scale components of floating offshore wind turbines. Applications will close on Sunday 25th June at 11:59pm. We are seeking formal applications from ports across the UK that can support the following activities:

• (a) turbine integration with floating wind foundation
• (b) floating wind foundation assembly; and/or
• (c) floating wind foundation manufacture

Strategic priorities for investment

The UK has designated the following high value manufacturing components as key strategic priorities in fixed bottom and floating offshore wind:

• floating substructures
• floating anchoring and mooring systems
• blades
• monopile foundations
• towers
• dynamic, export and inter-array cables
• transition pieces
• port infrastructure
• nacelle and hub
• specialist offshore logistics and installation vessels
• specialist floating operations and maintenance vessels
• tier two plus supply chain manufacturing

Other significant investment opportunities

• portside infrastructure to support the manufacturing, installation, operation and maintenance of fixed foundation offshore wind turbines
• large-scale, deepwater ports for fabrication, assembly, storage and deployment of floating offshore wind turbines
• operations and maintenance bases and related infrastructure.
• high voltage power cable manufacturing for interconnection.
• future offshore transmission owner (OFTO) Tender Rounds to bid for newly built and commissioned OFTO assets, which connect an offshore win farm to the UK onshore transmission system.
• high potential opportunities in Teesside, Humber and Cromarty and Moray Firths

Offshore wind farm project investment

Estimates show that over £50bn in construction capital expenditure is needed to build the UK’s offshore wind pipeline by 2030. There are investment opportunities throughout the life cycle of an offshore wind farm, including:

• project conception to acquiring a seabed lease for development
• site development to consent and permitting
• construction and installation
• operation and maintenance (resale and refinancing)
• decommissioning

Operations and maintenance

According to the Offshore Renewable Energy Catapult, the UK offshore wind operations and maintenance market will grow faster in relative terms than any other offshore wind sub-sector market over the next decade. By 2030, it’s expected that it will be the UK’s second largest sub-sector after turbine supply; a projected £1.3 billion per year opportunity.

Offshore Electricity Transmission (OFTO)

The Office of Gas and Electricity Markets’ (Ofgem) – the UK regulator for the electricity and downstream natural gas markets in Great Britain – OFTO regime underpins the government’s renewable energy targets by connecting renewable wind generation and prioritising consumers. Ofgem manages the competitive tender process through which offshore transmission assets are sold and licences are granted, enabling the transmission of electricity generated by an offshore wind farm to the onshore grid. The Department for Energy Security and Net Zero has launched a new enduring regime for this through The Offshore Transmission Network Review (OTNR), aiming to improve offshore generation’s connection to the onshore transmission network, and facilitating a more supportive approach for multi-purpose interconnectors.