UK Will Provide Record $1B in Support to Offshore Wind in Next Auction
The UK government is planning to offer a record amount of support in the next round of offshore wind energy auctions scheduled for this year. It comes as the latest effort to kick start the next phase of renewable energy development in the UK after they fell short in 2023 with no bidders in the previous round of auctions.
The UK had been at the forefront of offshore wind energy development and with approximately 14 GW already operational continues to have the largest installed base in Europe. China however surpassed the UK as the world’s leader and then with the impact of inflation and supply chain issues, the industry was further handicapped in the UK.
The government’s goal is to have 50 GW of offshore wind energy capacity operational by 2030. According to a report in the Financial Times, this year could see as much as 9 GW of new offshore wind projects bid for contracts.
The UK uses a scheme known as Contracts for Difference (CfD) where the wind farm developers bid for and receive a guaranteed price for the electricity generated at its sites. If the price of electricity falls below the agreed price the government supports it and if it goes above the companies rebate the extra to customers. The government argues that this certainty is critical for developers' planning and has encouraged additional investment in the emerging sectors.
The government’s Department for Energy Security and Net Zero confirmed on Wednesday that the new government budget includes £800 million (more than $1 billion) in funding for the upcoming sixth auction. It is more than four times the amount committed in 2023 and sets a new record for the government’s contribution.
It is the second key step designed to support the auctions and attract bids from the leading developers. Previously, the government reported that it was raising the cap price on electricity in the auction to £73 per MW. It is nearly double the £44 in 2023 which the industry argued was too low to make development economical. The guaranteed price is provided for 15 years with the latest round of contracts expected to begin in 2027.
In addition to not receiving bids in the September 2023 auctions, the Swedish energy company Vattenfall in July 2023 canceled planned UK projects citing the changed economics of the industry. The company won its Contract for Difference (CfD) in July 2022 for Boreas, which was to have an installed capacity of 1.4 GW and was due to deliver its first power in 2027. The zone with the three wind farms was to consist of between 180 and 312 turbines with a total capacity of 3.6 GW.
In the first renewed positive sign for the industry, RWE in December 2023 agreed to buy three offshore wind farm projects which were in a late stage of development from Vattenfall in a deal that valued the wind zone at approximately $1.2 billion. Now, hopes are high for a strong showing in the next round of the auctions.
In addition to increasing its support for offshore wind, the government also earmarked £200 million for other forms of renewable energy. This includes a third round for tidal energy projects, as well as support for onshore wind, solar farms, geothermal, and to support the continued development of floating offshore wind farms.
The government however also drew criticism for adding another year of tax credits for the North Sea oil industry now running till March 2029. In addition, they deferred support for new “small modular reactors,” a concept to expand the use of nuclear power by developing new technologies.
Iberdrola Offers to Acquire U.S. Renewables and Wind Subsidiary Avangrid
Spain’s Iberdrola, one of the world's biggest energy companies, is proposing to take private its U.S. operating company Avangrid in a deal valued at nearly $2.5 billion. The proposed acquisition comes as both companies are looking to expand their position in renewable energy with Iberdrola already holding over 80 percent of Avangrid.
Avangrid was launched in 2015 when Iberdrola USA, which owned regulated electric and gas utilities in New York and Maine acquired Connecticut-based UIL Holdings Corporation. At the time they said the combination would create a larger, more diversified power and utility company with seven regulated electric and gas utilities as well as a 6.5 GW primarily renewables portfolio, which included the second largest operating wind portfolio in the U.S., and a total pipeline of over 6 GW.
Today the U.S. operation is in 24 states and has two primary lines of business: networks and renewables. Through its networks business, Avangrid owns and operates eight electric and natural gas utilities, serving more than 3.3 million customers in New York and New England while through its renewables business, Avangrid owns and operates a portfolio of renewable energy generation facilities across the United States.
Last week, they reported that the Bureau of Ocean Energy Management (BOEM) had issued the Final Environmental Impact Statement for its New England Wind lease area. They expect to receive full federal approval in April and for the construction plan in July for the New England Wind lease area which has the potential to provide approximately 2 GW. Avangrid as part of a 50-50 Joint Venture with Copenhagen Infrastructure Partners, is constructing the first large-scale offshore wind project in the United States, Vineyard Wind One, located off the coast of Massachusetts. The project is currently under construction, and on track to achieve full commercial operations in 2024, while the company also pursuing the development of Commonwealth Wind (1200 MW), Park City Wind (804 MW), and Kitty Hawk Wind (3500 MW).
“The objective of this transaction is to increase exposure to the networks business in the United States at a key time for Iberdrola, which wants to grow in markets with high credit ratings and in regulated businesses such as networks,” the Spanish company said in announcing its offer.
Iberdrola offered $34.25 per share, which represents a premium of approximately 10 percent compared to the weighted average share price of the last 30 days, for the 18.4 percent of Avangrid that it does not currently own. This price represents an investment of $2.48 billion for Iberdrola.
Avangrid issued a statement reporting that an Unaffiliated Committee of its Board of Directors received and is reviewing the offer. They said that no decision has been made and that the committee will “review, evaluate, negotiate, and approve or disapprove the proposal, advised by independent legal and financial advisers, as well as any other alternative proposals or other strategic alternatives that may be available to Avangrid.”
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