U.K.’s Wind Capacity Set for Big Boost After Record Auction

(Bloomberg) -- Scotland awarded rights for a massive offshore wind development more than twice the size of the U.K.’s current capacity, in a move that surprised the market for its scale and was welcomed by environmentalists.

The list of winning projects in the tender adds up to nearly 25 gigawatts, far bigger than the 10 gigawatts that Scottish authorities had anticipated ultimately being built. 

If constructed, the projects will help provide clean power for the electrification of cars, home heating and factories that will drive a doubling of electricity demand in the next three decades. In all, the Scottish government will net about 700 million pounds ($955 million) in fees from the applicants.

The U.K. counts offshore wind as a crucial “home-grown” source of clean electricity that can reduce the nation’s reliance on fossil fuels -- and help reach net-zero carbon emissions by 2050. The energy price crunch that’s largely being caused by surging gas prices has underlined the need to focus on developing renewable energy, according to Business Secretary Kwasi Kwarteng. 

“It’s a massive step forward in getting Scotland to net-zero by 2045 and the U.K. to net-zero by 2050,” said Keith Anderson, chief executive officer of Iberdrola SA’s Scottish Power unit, which won leases for the most capacity of any developer.

Some of the fixed-bottom sites, such as the nearly 3 gigawatts of capacity won by BP Plc and Germany’s EnBW Energie Baden-Wuerttemberg AG, will likely be some of the earliest to come online, potentially before 2030. 

Still, there will be major hurdles to turning the wind farm plans into reality, such as planning permissions, electric grid capacities and sourcing turbines. Plus, most of the allotted sites are for floating projects, a nascent technology that will likely require significant government support to make them financially viable. The Scottish plan actually assumes that not all of the allotted capacity will end up being built.

“The 25-gigawatt capacity announced this morning speaks to the ambition for the future of U.K. wind, but there are certainly hurdles ahead in achieving this sizable output,” said Gavin Watson, a partner at Pillsbury Winthrop Shaw Pittman. “If we were able to achieve 10 gigawatts by the mid 2030s, we would be making good progress, but it remains to be seen if supply chains and other enabling factors will be up to delivering on this timescale.”

Iberdrola won rights for about 7,000 megawatts, including sites it plans to build with Royal Dutch Shell Plc. Along with BP and EnBW, other major victors included Falck Renewables SpA and SSE Plc. Their ability to construct the projects will be crucial for the U.K. to meet a goal to quadruple its offshore wind capacity this decade and continue scaling up beyond that as it cuts carbon emissions.

“This announcement marks a colossal step forward in U.K. offshore wind delivery,” said Doug Parr, Greenpeace U.K.’s policy director. New renewable power is vital, but on its own it’s not enough, he added. “We need home insulation, upgrades to the energy system, with retraining and support for people working in high carbon industries as they decline.

Big Oil

The contest highlighted the heated competition to develop the giant green energy sites between utilities and big oil companies.

Last year, a similar process in England and Wales saw BP and EnBW agree to pay a record-high fee for the right to develop 3 gigawatts of wind farms in the Irish Sea. In Scotland, there’s a cap on how high companies can bid, meaning the fees for sites will be much lower.

That limited the oil majors’ abilities to spend their way to victory in the Scottish contest. Still, the strong showing from BP, Shell and Total shows they have more to offer than just check books. Established players in the wind industry will have an increasingly difficult time maintaining their edge. BP and EnBW’s 2.9 gigawatts of projects, the biggest haul for fixed-bottom sites, will be worth as much as $10 billion, BP’s U.K. head, Louise Kingham, said in an interview.

The world’s largest developer of offshore wind farms, Orsted A/S, was among the partners with Falck Renewables on a single 1-gigawatt floating wind farm, loosening its grip on a market it’s long dominated after also failing to win seabed in British waters last year.

Many of the winning bids are for sites in deep waters that will require floating turbines, launching the nascent technology from the pilot stage.

“This is the first auction globally for seabed sites that could host gigawatt-scale floating wind projects,” said Oliver Metcalfe, an analyst at BloombergNEF. “Scaling up to commercial-scale projects will be crucial to cutting the cost of floating wind to make it competitive.”

The winning projects will provide enough electricity to power millions of British homes when they become operational, potentially by the end of this decade. 

©2022 Bloomberg L.P.