AR7 strike prices imply yet more UK energy bill increases
A subscriber got in touch and asked how the recently announced strike prices for ‘renewables’ auction Allocation Round 7 (AR7) compared to the costs assumed in the Clean Power 2030 (CP2030) plan prepared by the National Energy System Operator (NESO) in the autumn of last year
This is an important point, because as we have covered before, the original sums for CP2030 did not add up. After a bit of analysis, we can see that Miliband is going to need a much bigger budget and we are going to get even bigger bills.
Let’s dig into the detail.
In their comparison of costs of different technologies for CP2030 (see Figure 1), NESO assumed prices for onshore wind, offshore wind and solar of £72/MWh, £83/MWh and £71/MWh, respectively in 2024 prices.
This is well below the price they estimated for gas-fired generation, but only because they assumed roughly half the cost of gas-fired generation would be “emissions costs,” or ‘carbon’ taxes.
There is something of a sleight of hand in their calculations because the Contract for Difference strike price of active contracts in 2024 was well above their assumption at £112/MWh, £153/MWh and £110/MWh, respectively.
All these projects will still be in operation by 2030.
Leaving that aside for the moment, their prices were derived from the strike prices awarded in the AR6 auction. However, we now know that the huge 2.4GW Hornsea 4 offshore wind project from AR6 has been cancelled as uneconomic.
In the same 2024 prices, the recently announced AR7 offer prices are significantly above NESO’s CP2030 assumptions (see Table below)
Comparison of CP2030 Assumptions and AR7 Offers
Comparison of CP2030 assumptions and AR7 Offers for ‘renewable’ electricity costs (£/MWh 2024 prices)
Onshore wind offers are £92/MWh, up 27.8 percent compared to the CP2030 assumption.
Offshore wind is up 35.7 percent to £113/MWh.
Solar is up 5.9 percent to £75/MWh.
I have added a column for floating offshore wind too. This is up 38.8 percent.
NESO did include floating offshore wind in some of their detailed spreadsheets but stopped short of including it in their summary cost estimates.
These new AR7 offer prices blow the CP2030 plan and its generation cost estimates out of the water.
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