The Conservative Government has underlined the clout of the renewables lobby after caving in to demands for increased subsidies for generators in a move that could entail heavy costs for households, as it flounders towards the next general election.

The Department for Energy last week announced that the maximum price paid for wind energy generated offshore under a flagship scheme will increase by up to 66% following a campaign in which giant energy corporations played vocal parts.

Firms that operate windfarms fixed to the seabed will receive up to £73 per megawatt hour for their output, compared with the £44/MWh strike price set in the latest Contracts for Difference round.

Developers of floating windfarms are set for even more generous treatment. They will get up to £176/MWh, against £116/MWh.

The move comes after offshore wind investors boycotted the fifth CfD round held earlier this year. They claimed the prices on offer did not recognise the big rise in costs that developers faced following the spike in inflation and resulting increases in interest rates.

The scale of the increases in the prices the Government is offering will leave some wondering how ministers came up with the numbers used in the original auction and with the revised figures.

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Generators were delighted by the changes. These were detailed in a press release issued by the Department for Energy, which included approving quotes from the bosses of Scottish energy giants.

ScottishPower chief executive Keith Anderson said: “Bringing more green energy onto the system is the single most important thing we can do to cut customers’ bills and strengthen our energy security. This is a welcome signal that the government is listening and is committed to getting the UK’s pipeline of offshore wind projects moving again.”

SSE’s Alistair Phillips-Davies claimed: “Securing enough projects through the next 2 [CfD] auction rounds will be critical if the UK is to deliver on its stretching renewables targets and we therefore welcome today’s announcement which is an important step towards this goal.” 

The timing of the announcement may have helped distract some attention from the spat between the prime minister and former home secretary Suella Braverman that erupted after he sacked her for writing an incendiary article about policing – before the furore over Scottish health secretary Michael Matheson’s £11,000 iPad bill came to Mr Sunak’s aid.

Scotland’s first minister Humza Yousaf attacked the UK Government after generators snubbed the CfD round saying it had to increase the support on offer to secure the investment required in green energy.   

But even as he hailed the ambition reflected in the increase in support announced last week, ScottishPower’s Keith Anderson highlighted an issue that will be of some concern for householders.

“The real test of that ambition will come when the overall budget for the next auction round is set next year,” he said.

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The amount of support provided will depend on what happens to market prices. If they are lower than the strike price agreed the Government will pay the difference to generators and vice versa.

The costs of the budget will be added to the bills of householders, who have faced stinging increases  in gas and electricity charges amid Russia’s war on Ukraine.

Some will feel that rather than taking on the kind of price risk management involved the Government should leave it to the corporations concerned. They will likely have sophisticated treasury functions.

The scale of the cost increases complained about by generators partly reflects their heavy reliance on debt funding for projects.

With such factors in mined, the Government may have been far too generous last week.

Even after the recent boycott of the fifth CfD round by offshore developers there were signs that there was still plenty of interest in offshore wind.

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RWE noted this month that it had enjoyed a boost to third quarter earnings from a windfarm in the UK North Sea and highlighted plans to complete four more developments in the country’s waters.

The German giant plans to complete extensions to windfarms in the North and Irish Seas and the English channel, which will double the capacity of the assets concerned.

RWE noted that the commercial rationale for the extensions had been reinforced by the fact that advances in technology have helped reduce the cost of developments in recent years.

The cost increases that generators have complained about may prove to be temporary.

How much Scotland stands to benefit from increased support for offshore wind developments is uncertain.

The Government appears to hope that by having a separate pot for offshore wind it will encourage competition between developers. There can be no guarantee that Scottish projects will win out.

However, Scotland looks well placed to benefit from the decision to increase the strike price for tidal energy projects to £261/MWh from £202/MWh.

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Tidal generators in Scotland won support under the fifth round.

SSE last week highlighted the generosity of the support provided for onshore windfarm developers.

After posting £565 million first half profit, Perth-based SSE noted it had won support for onshore projects in the fifth CfD round despite snubbing the offshore auction.

The company said: “We held back from an offshore process that did not meet our investment criteria, but onshore we were rewarded with contracts secured for over 600MW at attractive returns.”

With SSE directors confident about its growth prospects, shareholders are in line for inflation-busting increases in payouts. The company last week reiterated its commitment to target annual dividend growth of between 5 - 10% to 2026/27.

Meanwhile, the Westminster Government has made a fresh move to try to ensure UK suppliers benefit from subsidised renewables investments, the outcome of which will be monitored closely in Scotland. The economic impact of investment in windfarms and the like has been much lower than the SNP Government has led people to expect.

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The Westminster administration said it plans to review applications ”not just on their ability to deliver low cost renewable energy, but also on how much a project strengthens the environmental and economic sustainability of the industry”.

It noted: “As part of this, a project’s social impact will also be considered – including how supply chains affect jobs and communities.”

This might mean the UK Government could use the CfD process to provide the boost to activity in Scotland that the SNP Government says is needed.

The plan was unveiled weeks after Humza Yousaf launched a £500m Scottish offshore wind supply chain fund with precious little detail.

However, with the changes not expected to apply before the CfD round scheduled for 2025 it may be unwise to expect too much of the initiative.  

Following objections from EU officials, the Government diluted previous plans to change the terms of Contracts for Difference, which were meant to ensure that overseas supplied didn't hog the benefits of the investment made in windfarms off the UK.