On 20 July, the application window for Allocation Round 8 (AR8) opened, the third renewable auction under a Labour Government, which will have a critical role in realising its energy policy ambitions. The opening coincided with Miatta Fahnbulleh MP’s appointment as the new Secretary of State for the Department of Energy Security and Net Zero (DESNZ).
National Energy System Operator CEO, Fintan Slye, has described CP2030 as a ‘Herculean effort’. Whilst projects contracted beyond AR8 could be deployed prior to 2030, tightening timelines mean this Round will need to take the Nemean lion’s share of the remaining shortfall.
The Secretary of State is a strong supporter of CP2030. To keep this ambition alive, whilst delivering cheaper household energy bills, she needs three key things from AR8:
- To put the UK on track for CP2030
The UK Government’s Clean Power 2030 Strategy sets out the capacity range for solar, offshore, and onshore wind required to meet CP2030. Assuming all projects that are currently contracted to deploy do so, there remains a shortfall in reaching the lower band of the capacity range for CP2030:
| Deployed | Contracted | CP2030 Capacity Range | CP2030 Shortfall | |
| Pot 1 – Solar | 16.6 GW | 12.1 GW | 45 – 47 GW | 16.3 GW |
| Pot 2 – Onshore Wind | 14.2 GW | 3.7GW | 27 – 29 GW | 9.1GW |
| Pot 3 – Offshore Wind | 14.8 GW | 24.3 GW | 43 – 50GW | 3.9 GW |
Contracting 3.9GW of offshore wind in AR8 is entirely achievable, it needs only to be half as successful as AR7, which contracted over 8GW.
Meanwhile, for onshore wind, AR5 (2024) was the best-performing Round in terms of the amount of contracted capacity, securing 1.5GW. AR7 last year contracted just 1.3GW. At this rate, we can expect it to be 2032 before the CP2030 shortall is contracted (but still not deployed). Solar similarly needs to ramp up to unprecedented levels to align with CP2030, with 4.9GW contracted in AR7a.
The onshore wind and solar projects contracted in ARs 9 (2027) and 10 (2028) could deploy before 2030, giving some breathing room. However, putting onshore wind and solar on track for their respective targets for CP2030 requires a significant increase in the budgets provided to these technologies. Which brings us to:
- Demonstrate value for money for billpayers
Given the ongoing energy crisis, DESNZ has stated that delivering value for money for consumers will be the overriding priority in AR8. This has always been a key purpose of the Contracts for Difference (CfD) mechanism to pass price reduction onto billpayers when costs were falling, from Allocation Rounds 1-4, and (unfortunately) rising costs from AR6-7.
Research by Aurora found that £94/MWh for offshore wind represents the cost-neutral point for energy billpayers. Below this price, projects are expected to deliver savings and, above, result in increases for household bills. In AR7, offshore wind received a strike price of £91.20/MWh in England and Wales, and £89.49/MWh in Scotland.
The last Round also delivered solar projects at a strike price of £65/MWh and onshore wind £72/MWh, which the then Secretary of State Ed Miliband argued made these technologies 50 per cent cheaper than building and operating a new gas plant.
However, the fracturing of the political consensus on net zero will bring renewed scrutiny to strike prices. In response to the AR7 results, the Shadow Energy Secretary argued that wind power is getting more expensive, the strike prices disguise the true system cost, and, ultimately, will increase household energy bills.
Increasing budget allocation helps procure more projects, but at an increased strike price. DESNZ has frozen the administrative strike prices for AR8 at AR7 levels. This is the ceiling of what these technologies can receive in AR8 (in 2024 prices):
- Solar: £75/MWh
- Onshore wind: £92/MWh
- Offshore wind: £113/MWh
The Government is signalling its intention to secure projects at similar prices to AR7, rather than ramp up to contract capacity aligned with CP2030.
- Demonstrate that changes to AR8 help manage the balance between CP2030 and value for money
The CfD mechanism has been tinkered with and changed since it first opened to bidders in 2014. AR8 will see an expansion of the Secretary of State’s powers.
For fixed offshore wind in AR7, the Secretary of State could view anonymised bid stack data after the bidding window closed and decide to increase the initial budget to procure more projects. Ed Miliband MP used these powers to double the budget for fixed offshore wind from £900m to £1.79bn to procure a record 8.4GW.
These powers for AR8 will be extended to solar, onshore and floating wind. This means that the budget (likely to be announced on 19 November) can be increased by the Secretary of State if she deems a project represents good value for money. These powers help DESNZ make informed decisions whilst keeping the strike price below what it deems an acceptable level.
These new powers could also have an interesting impact on developers’ bidding approach, if the expectation is that AR8 will follow a similar pattern to AR7 for offshore wind, where a lower-than-expected budget was initially announced, before being doubled later in the process.
Does the electorate believe that clean power = cheap power?
The results of AR8 are expected to be announced between 15 – 17 February 2027, during a winter in which household energy bills will likely be up (despite VAT being removed from electricity bills), and the cost of living will likely remain among UK voters’ top priorities.
Given this, the UK Government need the electorate to see the results of AR8 as delivering more cost-effective renewable energy, and that clean power is cheap power. DESNZ will hope therefore that, despite facing higher capital costs and supply chain pressures, the sector can respond to support its ambitions.
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