The recent news that the UK Government’s latest annual round of contract for difference (CfD) failed to include any offshore wind projects is a particularly concerning development for anyone keeping a watchful eye on some of the most important topics for Scottish and UK engineering.

CfD has been a critical part of building a renewable energy base for the UK and has been achieved by ensuring a guaranteed price for generated power that in turn gives developers - and their investors - confidence that these projects can achieve profitability over the lifetime of the development.

That developers have sat out this CfD round en masse underlines a situation which has been the reality for most manufacturers in recent years. Spiralling costs have constantly pushed their products to the edge of profitability, and whilst that is hard enough for a contract measured in months, for projects where a return on investment will be measured in decades, that’s a risk where the entire offshore wind sector appears to have calculated that it just doesn’t add up.

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Relevant examples that illustrate the impact of increases in costs for offshore wind developments include UK fabricated structural steel prices rising by more than 90% between 2020 and 2022, and copper increasing 43% in the same period. In our recent quarterly survey, 70% or more of companies reported that they had experienced further cost increases in the three months to September for materials, labour and energy prices, and these coming at a time where there was optimism for two out of three of these to improve. Of those three, energy has special relevance now as we have reached summer’s end and look ahead for what impact energy pricing will have for the coming winter season. We sat in exactly the same place this time last year, worried that the UK’s reliance on gas for electricity generation left us at the mercy of global gas prices, while being assured that we were simply in the midst of the tough transition to a bright renewable energy future.

And yet we have just missed the once-a-year opening for CfD to green light the projects of size and scale that would move the UK along that transition path. A lost opportunity for energy security and cost control, a lost opportunity for Scotland and the UK’s manufacturing supply chain, and especially a lost opportunity to instil confidence in the potential that offshore wind presents.

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It may be a lost opportunity, but it is certainly not a lost cause. The “so what” from this avoidable, some would say botched, auction outcome has to be that the UK Government learns from the offshore industry’s response to what is a competitive process, and adapts for auctions to come, starting with next year’s auction round. There is still time to ensure that the UK is at the forefront of offshore wind development, but to make the same mistake twice could seriously undermine long-term investor confidence in the sector here and risk major developers shifting their attention elsewhere.

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Alongside the absence of offshore wind, some 3.7 gigawatts of new renewables were allocated in the auction, comprising mostly solar and onshore wind, and this represented a 65% drop from last year’s level at a time where we really expected to see a growth of over a third more moving to development than the previous year. One bright spot is the allocation within that of more than 50 megawatts of new tidal energy generation, with around 60% of that expected to be based in Scotland between Simec Atlantis’s Meygen development, Orbital Marine Power and Magallenes Renovables. Orbital Marine Power’s expansion of its development of tidal energy projects around Orkney will cover the construction of six turbines under CfD and comes as part of a proven (and welcome) ability to manufacture these installations with greater than 75% of UK supply chain content.

Despite this one area of upside, it’s hard to disguise the sense of disappointment at these lost opportunities, and the lost time to step forward at a moment where it is clearly critical to do exactly that. The UK Government’s Climate Change Committee warned in June that almost no progress had been made on the UK’s net zero commitments, yet it failed to adapt a key policy to avoid a year being lost in the renewable energy transition that underpins those. And this despite having witnessed another summer where the enduring global images are of widespread wildfires, blistering heat, and devastating floods – all caused by global warming, which our net zero commitments are designed to address. However. the consequences are not just about climate – setting the CfD cap too low may superficially appear to some to be prudent management of public finances, but unrealistically low price-cap levels will have the opposite effect on longer-term energy costs and security, reducing investment in new renewables capacity, and leaving the UK exposed to volatile gas imports.

Paul Sheerin is chief executive of Scottish Engineering