Making progress on clean power, but at what price?

Last week’s offshore wind auction marked a major moment for the UK’s energy transition. This government awarded contracts for around 8.4 GW of new capacity, enough to power millions of homes and take a substantial step towards the goal of clean power by 2030.

There is no serious doubt that offshore wind is central to the UK’s long-term energy security and decarbonisation. The question that matters most these days is not whether we build windfarms, but how and at what cost to consumers.

The latest auction cleared at an average strike price (the fixed price the developer is guaranteed for every unit of energy generated) of around £91/​MWh (in 2024 prices). That figure has prompted sharply divided reactions. Some have welcomed it as evidence that the clean power mission is back on track; others see it as a disaster that costs are rising as households are still grappling with high energy bills.

Both reactions are understandable. This auction delivers huge gains for sustainability and energy security. But it also raises important questions about affordability and about whether the current policy framework is delivering the best deal for consumers.

On climate and security grounds, the case for offshore wind is unassailable. Scaling up domestic renewable generation reduces our reliance on imported fossil fuels, cuts our exposure to volatile global gas markets, and puts the UK on track to become one of the cleanest electricity systems in the world.

As wind and solar capacity expand, gas will be gradually pushed out and will only play a supporting role, running less often but remaining important for flexibility. That transition is essential if the UK is to meet its climate goals and build energy resilience. In that sense, this auction represents real progress. Few countries have the capacity, supply chains, and seabed resources to deliver offshore wind at the scale the UK does, and we are making the most of it.

However, affordability is where the picture becomes more complicated. A strike price of £91/​MWh is not unusually high by historical standards, but it is clearly higher than the previous auction, even though contracts are longer and include extra measures to reduce risk for developers. Much of the public debate has compared this price with the cost of gas power. But while new gas plants that run only occasionally can appear very expensive per unit of electricity, most of the gas generation that offshore wind will replace comes from existing plants.

On that basis, if we want to compare wind and gas we should look at the operating cost of gas, which depends on fuel and carbon prices, and can be lower than the new offshore wind strike price. That does not mean offshore wind is a bad investment. But it does mean the affordability case rests on broader system effects, not on simple one-to-one price comparisons.

“One factor stands out as central to the higher prices seen in this auction: the cost of finance”

Several recent analyses suggest that offshore wind at its current price could still be broadly cost-neutral for consumers over time. These findings rely on reasonable but uncertain assumptions: that renewables suppress wholesale prices to an optimum level; that gas prices keep rising in the short to medium term; and that network constraints and balancing costs are brought significantly under control.

Each of these may prove true but none are guaranteed. As the power system becomes dominated by fixed-price contracts and capacity payments, wholesale prices play a smaller role in determining bills. If network investment lags or curtailment costs remain high, the system costs of renewables rise. And while offshore wind is an effective hedge against gas volatility, locking in 20-year contracts based on expectations of higher future gas prices inevitably shifts some risk onto consumers. None of this undermines the strategic case for clean power. It does, however, underline the importance of designing policy to manage costs, not just capacity.

One factor stands out as central to the higher prices seen in this auction: the cost of finance. Offshore wind is capital-intensive. When interest rates rise and investors demand higher returns, project costs increase sharply. Even modest reductions in financing costs can translate into meaningful savings for consumers over the life of a project.

“The prize this government is aiming for remains enormous: secure, low-carbon electricity that underpins a more resilient economy”

This is where public institutions could play a larger role. Targeted guarantees, concessional loans, or construction-phase risk-sharing, delivered through bodies such as the National Wealth Fund, could lower financing costs without undermining competition or innovation. Other countries already do this (eg. KfW in Germany and EIB across Europe). The UK has the institutional capacity to follow suit, but this government has yet to fully take advantage of this opportunity.

The UK can and should continue to build offshore wind at scale. But doing so affordably will require evolving the policy framework alongside the technology. Given that offshore wind is now a mature, strategic technology, reducing the cost of capital should be treated as core infrastructure policy priority.

The prize this government is aiming for remains enormous: secure, low-carbon electricity that underpins a more resilient economy. Getting there will require not only ambition and timely project delivery but careful attention to how risks and rewards are shared between investors, the state, and households.

For a more detailed, technical take on the results, you can read more from the author here.

Image: Nicholas Doherty — Unsplash