UK’s AR7 to increase competition for offshore wind investors

The Department for Energy Security and Net Zero has set a £1 billion budget for its seventh Contracts for Difference (CfD) allocation round (AR7), part of its Clean Power by 2030 (CP2030) initiative. This round introduces key changes to the CfD framework, including extending contract terms from 15 to 20 years and allowing projects that are nearing the end of the planning process to participate.

‘Falling well short’

Clean energy trade bodies have described the budget as disappointing, warning it will only support around 5 GW of new offshore wind capacity. WindEurope, the European wind industry association, said: “The UK currently has 16.6 GW in offshore wind and wants 50 GW by 2030. They have only this auction and the one next year to deliver that. The proposed budget would leave the UK falling well short.”

The organisation estimates that the limited budget could result in the UK missing out on £53bn in private investment and 45,000 jobs.
“Every gigawatt of offshore wind brings £2–3bn to the UK. And they’ve got the projects ready to deliver these benefits. More than 20 GW of offshore wind are ready to bid in this auction, but only around a quarter would go forward with this budget,” WindEurope warned.

Costs vs scale

The latest auction aims to balance the government’s ambition to scale up clean energy generation with growing pressure to keep energy prices low. Chris Stark, head of the UK’s Mission for Clean Power, said the limited budget was intentional, noting that the government expected bids to exceed the initial allocation. “It brings into play the final new design choice for this allocation round – our new ability to go beyond today’s initial budget and contract more offshore wind generation if we see value for money for the consumer,” he said.

He added that, for the first time, officials will be able to see the full bid stack (though not the names of bidders) beyond the agreed budget, allowing them to make informed decisions to contract additional capacity. “This is perhaps the most important change in AR7,” Stark emphasised.

Research by University College London has shown that wind power has generated significant savings for UK energy consumers. Between 2010 and 2023, wind generation reduced national energy costs by at least £104bn compared with gas, the study found.

Renewable infrastructure challenge

The AR7 changes also pose fresh challenges for institutional investors backing offshore wind infrastructure. The Contracts for Difference (CfD) scheme, operated by the Low Carbon Contracts Company (LCCC), is the government’s main mechanism for supporting low-carbon electricity generation. CfDs provide price stability for developers by guaranteeing a fixed “strike price” for electricity generated. When the market price falls below the strike price, the LCCC tops up the difference to ensure stable revenues. When the market price exceeds the strike price, the project pays the difference back to the LCCC, reducing costs for consumers.

This structure encourages investment in renewable energy projects with high upfront costs and long lifetimes, while protecting consumers from excessive subsidy payments when electricity prices are high. 

However, lower strike prices mean lower guaranteed revenues per megawatt-hour, compressing project margins. This adds to existing headwinds for renewable infrastructure funds, which have already been challenged by high inflation, tariff pressures and rising interest rates.

Major investors in UK offshore wind include Brookfield, Macquarie and Schroders Greencoat. Net Zero Investor approached these firms for comment, but they were not available at the time of publication.