According to energy specialist Cornwall Insight, the cost of wind power could rise in the upcoming years as the Contracts for Difference (CfD) scheme may drive an increase in generation costs.
The fifth allocation round for the CfD scheme is set to take place in March, with previous rounds showing a trend of decreasing prices for offshore wind assets.
However, Senior Consultant Alex Asher believes that the next round may not follow this trend due to potential factors such as high inflation and geopolitical uncertainty, which have driven up capital costs over the past 12-18 months.
These factors may lead to higher auction prices, as inflation affects the cost of technology and construction, offsetting a key driver of lower prices in previous auctions. Developers with successful bids are paid a flat rate for the electricity they produce over a 15-year period, with the CfD scheme providing subsidy support and protection for renewable assets like offshore wind.
However, wider changes in the energy industry may also create uncertainty for potential participants in the allocation round. The government is considering separating renewable energy prices from gas prices, which could change how wholesale prices are calculated. It is not yet clear how this will affect the CfD scheme.
