Government sets record budget for green energy auction

The government is set to significantly raise the budget for this year's renewable energy auction, following calls from industry for more support.

Energy Secretary Ed Miliband will announce on Wednesday that the budget will be increased to £1.5bn, up by £500m from last year.

The majority of the funding will be available to develop offshore wind power, which the Labour government says it wants to quadruple by 2030.

The extra money has been broadly welcomed by the renewables industry, but there are warnings that without other changes, any new projects may not be delivered in time.

The government holds an auction each year to encourage companies to bid to develop renewable energy projects to supply the UK grid with electricity. The scheme is designed to ensure projects get a guaranteed price - known as the strike price - from the government for the electricity they will generate, which it is hoped will enable companies to have the confidence to invest.

Last year, developers did not bid for any offshore wind contracts - they argued that the price being offered was too low to make the projects viable.

In November, the former Conservative government significantly increased the strike price for offshore wind projects in response.

Mr Miliband has said Labour's commitment to maintain this higher price and increase the budget available for projects would "restore the UK as a global leader for green technologies".

But Claire Coutinho, shadow Energy Secretary, said the government's plans were untested and uncosted.

“Labour are ramping up renewables, at the same time as decimating investment in gas which is our only existing back up for when the sun doesn’t shine and the wind doesn’t blow. What will be put in its place? Ed Miliband can’t tell you," she said.

Esin Serin, policy fellow at LSE's Grantham Research Institute on Climate Change and the Environment, said the budget increase was a "welcome and necessary step".

But she added that this year's auction would likely only deliver 10GW of the 40GW needed for Labour to meet its 2030 target.

"It obviously leaves a significant amount of work to future rounds," she said.

This announcement is one of a number of measures the Labour government has rolled out since the election to boost renewable energy, including removing planning restrictions on onshore wind and teaming up with the Crown Estate to develop new offshore wind projects.

Dr Rahmat Poudineh from the Oxford Institute for Energy Studies agreed that the higher budget would bring in more bids but warned that developers still faced challenges, including unexpected cost increases and delays in connecting their projects to the grid.

Currently it takes offshore wind projects between 10 and 15 years to be completed - suggesting any projects secured in this auction could slip past the 2030 target date.

The government wants to see renewable energy projects grow quickly to reduce planet-warming greenhouse gas emissions from fossil fuel use. But it also says it wants to increase energy independence to protect billpayers from fluctuations in the international energy market.

Gas prices hit record highs in 2022 as the Russian invasion of Ukraine caused disruptions to supply.

If the price the government guarantees to renewable energy developers ends up being much lower than the eventual price on the market in 2030 then the taxpayer could lose money.

But Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, said it was more likely that scheme would break even.

And she added that if there was to be another gas crisis then the wind energy secured at this auction could save £30-40 per year on every household's energy bill in the future.