SSE PLC (LSE:SSE), Iberdrola and Engie are among the winners named in the latest government auction for long-term power contracts, promising to deliver offshore wind power for as little as an eighth of the price of wholesale gas.
The British government is relying on a raft of newly awarded cheap power contracts to get the country through the burgeoning energy crisis.
These so-called “contracts for difference” guarantee a floor price for low carbon power to producers, while also locking in stable power prices over a contract period of up to 15 years.
Winners from the latest auction for offshore wind power capacity include Red Rock Power (owned by China's SDIC), ScottishPower (owned by Spain's Iberdrola), Danish developers Vattenfall and Orsted, France's Engie and Portuguese utility Energias de Portugal’s renewable energy arm.
Many of the project winners’ share prices got a boost this morning. Iberdrola’s shares were up 0.19% by 11:46AM. Engie’s shares rose 1.71%, while Orsted's lifted 0.15%, EDP Energias de Portugal's shares were up 0.45% in France and SDIC Power's were up 1.35% in Shanghai.
They won contracts for a raft of offshore wind farms including Inch Cape, East Anglia 3, Norfolk Boreas, Hornsea 3 and Moray West, which are due to be built off the coast of England, Scotland and Wales.
The government awarded more than sixty power contracts to solar photovoltaic projects for delivery from 2024 to 2025, and one energy from waste project, at a price of £45.99.
Given the impact of inflation, especially if gas prices fall in future, they may not be much more expensive in real terms to deliver than offshore wind, one analyst told Proactive, but are on a much smaller scale.
Solar projects are less scalable than offshore wind, with Hornsea 3 being the largest project to secure a “contract for difference” in the latest round, representing approximately 2.85 GW of planned installed power capacity to be delivered by 2027.
Ten onshore wind projects won contracts to deliver power for £42.47 for delivery from 2024 to 2025 onwards.
The most expensive power contracts awarded in the government’s fourth-round were to four tidal stream projects, which offer the most reliable source of continual or "baseload" power, for £178.54 per MWh, for projects due for delivery from 2025 to 2027.
Among them was a tidal energy project by SIMEC Atlantis Energy Ltd (AIM:SAE, OTC:SMAYF). Simec Atlantis’s shares were up 42.83% this morning, trading at 1.79p per share.
Following the NIMBYism (not in my backyard) attitude among many Tory-ruled constituents, subsidies for onshore wind power and solar were cut in 2019, and subsequently many of the onshore wind farms awarded contracts in the latest fourth round for CfDs will be located in remote islands.
This includes the Viking project by SSE Renewables on the Shetland Islands from 2026 to 2027 onwards. SSE’s shares remained flat this morning.
Despite the Crown Estate's announcement this week that it has demarcated five strips of the seabed for floating offshore wind projects and recent allocations under the government's fourth round of approvals, Bechtel Infrastructure and Power's floating offshore wind farm, the TwinHub Floating Offshore Wind Project, was the only one to secure a guaranteed floor price through a government contract.
Potential contenders such as BP PLC (LSE:BP.), which recently secured rights to develop the mammoth 2.9 GW Morven offshore wind farm off the east coast of Scotland, and Shell PLC (LSE:SHEL, NYSE:SHEL)'s planned floating offshore wind farms near Caithness were surprising ommissions from the round.