The UK government is set to introduce financial incentives for wind companies that cut their carbon footprint in 2025’s Allocation Round 7 (AR7).
Offshore wind and floating wind winners of the contracts for difference (CfD) round in 2025 will see additional payments through ‘Sustainable Industry Rewards’ (SIR).
To be eligible, firms will have to invest in the wind supply chain and be seen to take action to increase their sustainability.
Examples of how to meet these requirements include investing in new factories in economically disadvantaged areas to shorten their supply chains or choosing companies investing in sustainable manufacturing practices to build their projects, a government update outlined.
In January RWE, the largest electricity generator in the UK, said that there was “quite a lot of scepticism in the developer community” surrounding the changes to the CfD process.
At an industry event early this RWE’s senior regulatory affairs manager James Brabben said: “I think it’s fair to say there is quite a lot of scepticism in the developer community about these rewards at the moment, mainly because we’re still in a period of heightened supply chain volatility and constraints globally, not just in the UK. And introducing a measure like this, which hasn’t been done in other markets, does come with risks.”
However, RenewableUK’s markets policy analyst Nick Hibberd argued that if “SIRs are implemented in the right way” the UK offshore wind supply chain will grow, “supporting new manufacturing, job creation, technical innovation and investment in skills.”
The trade body warned that the government must give the scheme an “ambitious budget” to meet objectives.
He added: “This will enable us to build new projects faster, deliver value for consumers, accelerate our transition to clean, low-cost power and strengthen Britain’s energy security significantly.”
Calling the announcement “particularly timely” Mr Hibberd explained that “the global offshore wind supply chain is constrained” and he believes that if the UK grows its industrial capability, it will find itself in a “strong position” to sell goods domestically and internationally.
‘No better way of strengthening the long-term growth’
The introduction of these changes came following responses to a consultation on introducing SIR into the CfD scheme.
Energy minister Andrew Bowie commented: “There is no better way of strengthening the long-term growth of our renewable energy supply chain than through our flagship Contracts for Difference scheme, which has already had enormous success in supporting British low-carbon electricity.
“Sustainable Industry Rewards will enable offshore wind companies to kickstart the investments that will create an even stronger sector, boost our energy security and grow our economy.
“I look forward to their formal introduction, which will enhance our reputation as one of the most attractive places globally to invest in renewables.”
RWE has previously said it supports moves to help the supply chain but SIRs could introduce “unwelcome complexity and risk”.
SIR applicants will compete against each other in a competitive auction, in order to ensure the best value for money for billpayers, the UK government explained as it announced the introduction of SIRs into AR7.
Despite previous concern from RWE, RenewableUK’s Mr Hibberd said after the announcement: “The Government’s new system of Sustainable Industry Rewards fits into a much wider suite of measures to support the development of the UK’s offshore wind supply chain which the sector is supportive of, including the Green Industries Growth Accelerator (GIGA) and the upcoming Industrial Growth Plan (IGP).”
£800m set aside for offshore wind in AR6
Recently the UK government confirmed the budget for the sixth allocation round, setting aside £800 million for offshore wind projects.
The next CfD auction will be open for bids from developers on March 27, with renewable energy types grouped into three pots.
The total budget for AR6 will include just over £1 billion in funding from each financial year from 2027/28 to 2029/30, plus an additional £905 million in 2030/31.
The government will allocate a record £800 million for offshore wind projects in AR6, part of efforts to make up for a disastrous AR5 auction which saw no bids from the sector.
September’s AR5 fell flat for offshore wind as developers argued strike prices were no longer cost effective” amid soaring inflation.
The rising cost of offshore wind development was cited in a recent government document as a reason for the introduction of SIR.
“Component costs have increased, and many supply chain companies have struggled as a result, deployment targets have increased faster than manufacturing capacity, the carbon footprint of the industry remains substantial, and consumers rightly expect to see more benefits from greater renewables deployment in terms of economic and environmental gains,” the response to consultation explains.
The document called for an offshore wind industry which can roll with weather economic and global challenges while delivering sustainable deployment.
Recommended for you
