DESNZ has allocated a budget of £900 million per year for fixed-bottom offshore wind in AR7. However, this level of support suggests that achieving Clean Power 2030 capacity targets is likely to be challenging. Based on the announced parameters, it is projected that ~3-4GW of offshore wind could clear in the AR7 auction. That budget assessment considers offshore wind capture price ‘reference prices’, which are as low as £32/MWh in 2031/32.
Using our stochastic pan-European market model, we have analysed the impact of additional offshore wind capacity on capture prices as shown in the chart. This suggests that if offshore wind capacity does not meet government targets, CfD “top-ups” could be substantially smaller due to higher capture prices. Even if the ambitious target of 55GW of offshore wind by 2030 is met, Timera projects the capture price to be greater than the reference value.
Chart: Cost to CfD (£m/yr) by clearing price and capture price
Source: DESNZ, Timera Energy
Timera projects the CfD cost to be closer to £700m in real 2024 terms as shown in the heatmap, with offshore wind build out unlikely to reach levels to push capture prices down to the reference price of £32/MWh.
If DESNZ had used a higher reference price assumption, the same £900 m budget could support significantly more offshore wind capacity. This would support the investment case for BESS, however weigh on margins for gas. This dynamic is particularly significant given the substantial pipeline of BESS projects in the Capacity Market, with ~20 GW with contracts over the next four years. If renewable build out is lower than projected, it could dampen market volatility and reduce the value BESS assets derive from re-optimisation and forecast errors during a period of potential overbuild in storage capacity.
For further details on our GB BESS services including commercial due diligence, asset valuation, offtake structuring & market analysis, feel free to contact our Power Director Steven Coppack (steven.coppack@timera-energy.com).
