Energy industry leaders have warned the UK could fall behind a key target for new offshore wind power ahead of the results of a government auction that is widely expected to flop.
Multiple industry sources have told Sky News the auction, the results of which are expected to be announced on Friday, has received little or no interest.
Insiders say the process has struggled to attract bidders because the government has set the maximum price generators can receive as too low, failing to reflect the rising costs of manufacturing and installing turbines.
The industry has been hit by inflation that has seen the price of steel rise by 40%, supply chain pressures and increases in the cost of financing.
Several companies, including the UK’s largest renewables generator SSE, have ruled themselves out of the auction, with one source saying the number of potential bidders was “between two and zero, with expectations at the lower end of that range”.
The renewables auction is an annual process in which the government attempts to incentivise private sector investment in a range of power sources through a mechanism known as “contracts for difference” (CfDs).
Image: SSE is among major players to have boycotted the auction
The auction works in reverse, with the government setting a maximum reference price, effectively a cap on what consumers can be charged, and in normal circumstances generators bid below that to provide power over a 15-year contract.
More on Renewable Energy
Related Topics:
Under the CfD, generators are guaranteed a price for the power they produce, with the government making up the difference if wholesale prices fall below that price.
When wholesale prices are higher, as they have largely been since the Ukraine war began, generators pay the difference above the guaranteed price back to the Treasury.
‘The sums didn’t add up’
In theory this delivers value to consumers and suppliers but the chief executive of SSE, Alistair Phillips-Davies, told Sky News the price cap in this auction of £44MW/h, only a little above last year’s price, meant it was not viable.
“For the project we had, which is a little smaller than some and in deeper waters further north in the UK, we just wouldn’t have been able to even get a bid in at that cap price,” he said.
“The sums didn’t add up, we wouldn’t have been able to make an economic bid at that level. We’d have been struggling with write-offs, and we’ve seen some competitors in the sector have unfortunately suffered in recent weeks.”
Mr Phillips-Davies said the government needed to act now to ease market conditions for the renewables sector to ensure next year’s auction generated capacity.
Please use Chrome browser for a more accessible video player
1:20
‘Who wants to open their curtains to a wind turbine?’
He suggested additional taxes on renewables profits be withdrawn in 2024 rather than 2028, bringing the UK in line with Europe, extending capital allowances to compete with the US subsidy regime the Inflation Reduction Act (IRA), as well as ensuring a more realistic price cap in the next auction round.
He pointed to a recent auction in Ireland, operating under a different structure, that set a price of €150 MW/h.
He said: “I think people will need to look at the cap, while being sensitive to what consumers should be paying, and what we’ve got to do is be ambitious next year.
“We’ve got to be thoughtful about what we do and make sure that the next auction is constructed not only to get people to win an auction, but to actually build a piece of kit.”
This auction round, technically known as Allocation Round 5 (AR5) is expected to attract bids for solar and onshore wind capacity, but failure to secure significant new offshore wind capacity would be a blow to the government’s target of reaching 50GW by 2030.
‘Fingers in their ears’
It will also intensify the increasingly sharp debate over the true cost of achieving net zero to consumers and the public purse, as the energy transition moves from abstract policy theory to practical delivery.
Insiders say officials were repeatedly warned by industry that the auction would fail unless the price was increased.
Shadow energy secretary Ed Miliband said this week ministers “had put their fingers in their ears.”
The UK currently has 14GW of functioning offshore wind capacity, placing huge pressure on the next two annual auctions to fill the gap.
Offshore wind is the backbone of the UK’s renewable energy supply, providing 40% of electricity last year, and the target is a crucial plank in the wider goal of reaching net-zero by 2050.
Previous auctions have been successful in increasing offshore wind capacity, with last year’s round attracting 7GW of capacity from five operators.
One of those projects, run by Swedish state-owned power company Vattenfall, has already been mothballed however because of rising costs hitting the industry.
‘Very difficult market’ for offshore wind developers
Lisa Christie, UK country manager for Vattenfall, told Sky News the investment model no longer matched economic reality.
“The economics at the moment simply don’t stack up,” she said.
“There’s a number of reasons for that. It’s the war in Ukraine, we’ve seen rises in inflation, we’ve seen rises in the cost of capital, obviously rises in commodity costs.
“You put all of that together. And it’s just a very, very difficult market environment for offshore wind developers right now.
“I think we’re at a very difficult point. And we have a lot of offshore wind farms, including Vattenfall, that haven’t been able to take fields where perhaps you wouldn’t have expected them to do.
Please use Chrome browser for a more accessible video player
0:46
Wind turbine catches fire off Norfolk coast
“So there is a challenge in the industry, I don’t think is insurmountable and there is still time for the government to turn this around.
“So what we’re really looking for is to put the CfDs back onto a financially sustainable footing and then we can reap the benefits that increased offshore wind deployment bring.”
Concerns UK will lose offshore wind superiority
Major suppliers to the industry are also concerned that any political drift in the build up to the election could see the UK lose its pre-eminence in offshore wind.
Laura Fleming, the UK managing director of Hitachi, which produces high-voltage direct cables that bring power onshore, said the UK needs to compete with more generous subsidy regimes around the world.
“The investment climate in the UK needs to send a clear signal that we are open for business, and compared to the IRA in the US, and the new green deal in Europe, we need to ensure that we still stand out.”
The renewables industry insists that even at a higher price in this auction, wind power would still be substantially cheaper than fossil fuel alternatives. At their peak last year wholesale gas prices were up to nine-times higher than offshore wind strike prices.
Renewables generated under CfDs can also return money to the taxpayer. Since the invasion of Ukraine forced up electricity prices many wind farms operating under CfDs have been paying back millions of pounds to the Treasury.
Mr Phillips-Davies said: “We’ve got to remember at the moment offshore wind is looking a bargain compared to wholesale energy prices. It’s half the price or less of where the current market is, so we need to be building more.”
The Post Office will next week unveil a £1.75bn deal with dozens of banks which will allow their customers to continue using Britain’s biggest retail network.
Sky News has learnt the next Post Office banking framework will be launched next Wednesday, with an agreement that will deliver an additional £500m to the government-owned company.
Banking industry sources said on Friday the deal would be worth roughly £350m annually to the Post Office – an uplift from the existing £250m-a-year deal, which expires at the end of the year.
The sources added that in return for the additional payments, the Post Office would make a range of commitments to improving the service it provides to banks’ customers who use its branches.
Banks which participate in the arrangements include Barclays, HSBC, Lloyds Banking Group, NatWest Group and Santander UK.
Under the Banking Framework Agreement, the 30 banks and mutuals’ customers can access the Post Office’s 11,500 branches for a range of services, including depositing and withdrawing cash.
More on Post Office Scandal
Related Topics:
The service is particularly valuable to those who still rely on physical cash after a decade in which well over 6,000 bank branches have been closed across Britain.
In 2023, more than £10bn worth of cash was withdrawn over the counter and £29bn in cash was deposited over the counter, the Post Office said last year.
A new, longer-term deal with the banks comes at a critical time for the Post Office, which is trying to secure government funding to bolster the pay of thousands of sub-postmasters.
Reliant on an annual government subsidy, the reputation of the network’s previous management team was left in tatters by the Horizon IT scandal and the wrongful conviction of hundreds of sub-postmasters.
A Post Office spokesperson declined to comment ahead of next week’s announcement.
As Chancellor Rachel Reeves meets her counterpart, US Treasury secretary Scott Bessent to discuss an “economic agreement” between the two countries, the latest trade figures confirm three realities that ought to shape negotiations.
The first is that the US remains a vital customer for UK businesses, the largest single-nation export market for British goods and the third-largest import partner, critical to the UK automotive industry, already landed with a 25% tariff, and pharmaceuticals, which might yet be.
In 2024 the US was the UK’s largest export market for cars, worth £9bn to companies including Jaguar Land Rover, Bentley and Aston Martin, and accounting for more than 27% of UK automotive exports.
Little wonder the domestic industry fears a heavy and immediate impact on sales and jobs should tariffs remain.
Please use Chrome browser for a more accessible video player
1:25
Chancellor’s trade deal red lines explained
American car exports to the UK by contrast are worth just £1bn, which may explain why the chancellor may be willing to lower the current tariff of 10% to 2.5%.
For UK medicines and pharmaceutical producers meanwhile, the US was a more than £6bn market in 2024. Currently exempt from tariffs, while Mr Trump and his advisors think about how to treat an industry he has long-criticised for high prices, it remains vulnerable.
More on Tariffs
Related Topics:
The second point is that the US is even more important for the services industry. British exports of consultancy, PR, financial and other professional services to America were worth £131bn last year.
That’s more than double the total value of the goods traded in the same direction, but mercifully services are much harder to hammer with the blunt tool of tariffs, though not immune from regulation and other “non-tariff barriers”.
Please use Chrome browser for a more accessible video player
3:13
How US ports are coping with tariffs
The third point is that, had Donald Trump stuck to his initial rationale for tariffs, UK exporters should not be facing a penny of extra cost for doing business with the US.
The president says he slapped blanket tariffs on every nation bar Russia to “rebalance” the US economy and reverse goods trade ‘deficits’ – in which the US imports more than it exports to a given country.
That heavily contested argument might apply to Mexico, Canada, China and many other manufacturing nations, but it does not meaningfully apply to Britain.
Figures from the Office for National Statistics show the US ran a small goods trade deficit with the UK in 2024 of £2.2bn, importing £59.3bn of goods against exports of £57.1bn.
Please use Chrome browser for a more accessible video player
2:00
IMF downgrades UK growth forecast
Add in services trade, in which the UK exports more than double what it imports from the US, and the UK’s surplus – and thus the US ‘deficit’ – swells to nearly £78bn.
That might be a problem were it not for the US’ own accounts of the goods and services trade with Britain, which it says actually show a $15bn (£11.8bn) surplus with the UK.
You might think that they cannot both be right, but the ONS disagrees. The disparity is caused by the way the US Bureau of Economic Analysis accounts for services, as well as a range of statistical assumptions.
“The presence of trade asymmetries does not indicate that either country is inaccurate in their estimation,” the ONS said.
That might be encouraging had Mr Trump not ignored his own arguments and landed the UK, like everyone else in the world, with a blanket 10% tariff on all goods.
Trade agreements are notoriously complex, protracted affairs, which helps explain why after nine years of trying the UK still has not got one with the US, and the Brexit deal it did with the EU against a self-imposed deadline has been proved highly disadvantageous.
Water regulators and the government have failed to provide a trusted and resilient industry at the same time as bills rise, the state spending watchdog has said.
Public trust in the water sector has reached a record low, according to a report from the National Audit Office (NAO) on the privatised industry.
Not since monitoring began in 2011 has consumer trust been at such a level, it said.
The last time bills rose at this rate was just before the global financial crash, between 2004-05 and 2005-06.
Regulation failure
All three water regulators – Ofwat, the Environment Agency and Drinking Water Inspectorate – and the government department for environment, food and rural affairs (Defra) have played a role in the failure, the NAO said, adding they do not know enough about the condition or age of water infrastructure and the level of funding needed to maintain it.
More on Environment
Related Topics:
Since the utilities were privatised in 1989, the average rate of replacement for water assets is 125 years, the watchdog said. If the current pace is maintained, it will take 700 years to replace the existing water mains.
Image: The NAO said the government and regulators have failed to drive sufficient investment into the sector. File pic: PA
Despite there being three regulators tasked with water, there is no one responsible for proactively inspecting wastewater to prevent environmental harm, the report found.
Instead, regulation is reactive, fining firms when harm has already occurred.
Financial penalties and rewards, however, have not worked as water company performance hasn’t been “consistent or significantly improved” in recent years, the report said.
‘Gaps, inconsistencies, tension’
The NAO called for this to change and for a body to be tasked with the whole process and assets. At present, the Drinking Water Inspectorate monitors water coming into a house, but there is no entity looking at water leaving a property.
Similarly no body is tasked with cybersecurity for wastewater businesses.
As well as there being gaps, “inconsistent” watchdog responsibilities cause “tension” and overlap, the report found.
The Environment Agency has no obligation to balance customer affordability with its duty to the environment when it assesses plans, the NAO said.
Please use Chrome browser for a more accessible video player
0:53
Thames Water boss can ‘save’ company
Company and investment criticism
Regulators have also been blamed for failing to drive enough funding into the water sector.
From having spoken to investors through numerous meetings, the NAO learnt that confidence had declined, which has made it more expensive to invest in companies providing water.
Even investors found Ofwat’s five-yearly price review process “complex and difficult”, the report said.
Financial resilience of the industry has “weakened” with Ofwat having signalled concerns about the financial resilience of 10 of the 16 major water companies.
Most notably, the UK’s largest provider, Thames Water, faced an uncertain future and potential nationalisation before securing an emergency £3bn loan, adding to its already massive £16bn debt pile.
Water businesses have been overspending, with only some extra spending linked to high inflation in recent years, leading to rising bills, the NAO said.
Over the next 25 years, companies plan to spend £290bn on infrastructure and investment, while Ofwat estimates a further £52bn will be needed to deliver up to 30 water supply projects, including nine reservoirs.
Image: The NAO said regulators do not have a good understanding of the condition of infrastructure assets
What else is going on?
From today, a new government law comes into effect which could see water bosses who cover up illegal sewage spills imprisoned for up to two years.
Such measures are necessary, Defra said, as some water companies have obstructed investigations and failed to hand over evidence on illegal sewage discharges, preventing crackdowns.
Meanwhile, the Independent Water Commission (IWC), led by former Bank of England deputy governor Sir Jon Cunliffe, is carrying out the largest review of the industry since privatisation.
What the regulators and government say?
In response to the report, Ofwat said: “The NAO’s report is an important contribution to the debate about the future of the water industry.
“We agree with the NAO’s recommendations for Ofwat and we continue to progress our work in these areas, and to contribute to the IWC’s wider review of the regulatory framework. We also look forward to the IWC’s recommendations and to working with government and other regulators to better deliver for customers and the environment.”
An Environment Agency spokesperson said: “We have worked closely with the National Audit Office in producing this report and welcome its substantial contribution to the debate on the future of water regulation.
“We recognise the significant challenges facing the water industry. That is why we will be working with Defra and other water regulators to implement the report’s recommendations and update our frameworks to reflect its findings.”
A Defra spokesperson said: “The government has taken urgent action to fix the water industry – but change will not happen overnight.
“We have put water companies under tough special measures through our landmark Water Act, with new powers to ban the payment of bonuses to polluting water bosses and bring tougher criminal charges against them if they break the law.”
Water UK, which represents the water firms, has been contacted for comment.