The government’s green energy plans have been dealt a blow after firms snubbed an auction for contracts to run new offshore wind sites.
Insiders had warned the process had struggled to attract bidders because the government has set the maximum price generators can receive as too low, failing to reflect the rising costs of manufacturing and installing turbines.
The industry has been hit by inflation that has seen the price of steel rise by 40%, supply chain pressures and increases in the cost of financing.
This year offshore wind producers were allowed to bid at most £44 per megawatt hour (MWh) of electricity.
In 2015 when the first auction was launched the maximum bid allowed was £155 per MWh. These figures are adjusted for inflation to 2012 prices.
The government confirmed that while solar and onshore wind projects had won backing in the annual contracts for difference (CfD) auction, there were none for offshore wind, which is the backbone of the UK’s renewables system.
It is a setback to ministers’ pledge to deliver 50 gigawatts (GW) of offshore wind by 2030, from 14 GW currently.
Energy and climate change minister Graham Stuart said: “We are delighted that our first annual contracts for difference auction has seen a record number of successful projects across solar, onshore wind, tidal power and, for the first time, geo-thermal.
“Offshore wind is central to our ambitions to decarbonise our electricity supply and our ambition to build 50GW of offshore wind capacity by 2030, including up to 5GW of floating wind, remains firm.
“The UK installed 300 new turbines last year and we will work with industry to make sure we retain our global leadership in this vital technology.”
In May, trade body EnergyUK warned this year’s auction “will fall well short of delivering the expansion of offshore wind needed to hit the government’s target” for the UK to build 50 gigawatts of offshore wind capacity by 2030.
Keith Anderson, the chief executive of ScottishPower, said: “This is a multi-billion pound lost opportunity to deliver low-cost energy for consumers and a wake-up call for Government.
“The CfD (contracts for difference) process is recognised globally as a lynchpin of the UK’s offshore success, but it also needs to flex to keep pace with the world around it.
“We all want the same thing, to get more secure, low-cost green offshore wind built in our waters.
“We need to get back on track and consider how we unlock the billions of investment in what is still one of the cheapest ways to generate power and meet the UK’s long-term offshore wind ambitions for the future.”
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Labour’s Ed Miliband branded the outcome of the auction an “energy security disaster” that would push up household bills.
The shadow energy security secretary said: “The news this morning is an energy security disaster and a £1bn Tory bombshell that will push bills up for hardworking families.
“The Conservatives have now trashed the industry that was meant to be the crown jewels of the British energy system, blocking the cheap, clean, homegrown power we need.
“Ministers were warned time and again that this would happen, but they did not listen. They simply don’t understand how to deliver the green sprint, and Rishi Sunak’s government is too weak and divided to deliver the clean power Britain needs.”