UK offshore wind: converting record-breaking auction success into physical delivery

Overview

AR7 has resulted in a headline 8.4GW of offshore wind capacity, at a price of GBP91.20/MWh (in 2024 prices) for fixed-bottom projects in England and Wales, under 20‑year contracts.

Most will describe this as a successful result for the UK government and the offshore wind sector more broadly. Domestically, the result materially supports this government’s Clean Power 2030 mission and its ambitious offshore wind targets, with the government claiming the results “unlock” GBP22 billion in private finance. Overall, the outcome helps reset momentum after a period of uncertainty for the sector in terms of global macro-economic and political challenges and delayed auctions.

While some celebration certainly seems warranted, successful developers will now need to proceed at pace to translate auction success into physically delivered projects, navigating an evolving construction market and supply chain constraints. Those who were unsuccessful will be weighing their options, and we expect prospective bidders for Allocation Round 8 (AR8) would welcome greater clarity on the Secretary of State’s approach discussed below to increasing the budget post receipt of sealed bids.

The price at which this auction cleared has also sparked some discussion around the cost of offshore wind deployment. Whilst prices have increased slightly in real terms from the previous year’s auction¹, we are reminded that, whilst the budget reflects official estimates of levies that could be added to energy bills, the actual cost will be determined by future wholesale prices during the 20-year term of the CfDs (and against which the CfD provides a hedge) rather than by the strike price in isolation. In addition, the Clean Industry Bonus for AR7 allocated up to GBP544 million as a further financial incentive to developers to support sustainable, low-carbon supply chains and investment in regions that need it most, highlighting the added benefits that are anticipated to flow from the scheme.

The results and capacity gap implications

DESNZ claims the result as the largest ever single procurement of offshore wind in Europe, awarding 8.4GW across six fixed-bottom projects and two floating projects. The fixed-bottom awards cleared at GBP91.20/MWh in England and Wales and GBP89.49/MWh in Scotland², with floating awards at GBP216.49/MWh (all in 2024 prices).

How does this fit with the Clean Power 2030 Action Plan released just over a year ago and the government’s highly ambitious target of 43–50GW of offshore wind installed by 2030? In September 2024, we referred to the AR6 result as a “rebound for offshore wind” in the wake of the previous AR5 (which notoriously received no bids from offshore wind projects), but noted the challenge—with the window fast closing—for new offshore projects to count toward 2030 targets.

That challenge certainly remains. According to the government, the UK had around 31GW of constructed or contracted offshore wind capacity as at the beginning of 2025, which left 12GW to be secured across AR7 to AR9. Whilst the AR7 results will go some way to closing the gap, many of those successful projects are not expected to be fully delivered until after 2030. And projects which are discontinued after being awarded a contract (such as Hornsea 4 last year) leave a gap in capacity that needs to be replaced by suitable alternatives in sufficient time if the target is still to be achieved.

Looking beyond the UK, some may view AR7’s outcome as a validation of the CfD model to support offshore wind deployment, which has been under recent consideration in other parts of Europe, including in Germany. We discussed the shift toward CfDs from countries with so called “negative bidding” auctions in our recent bulletin.

Changes to the AR7 auction process

Notably, AR7 also saw some significant changes to policy and auction design for the UK’s CfD model. In terms of policy, of particular consequence were the extension of the CfD contract term from 15 to 20 years for wind and solar (with the idea that a longer term may reduce exposure to merchant tail revenue risk and ultimately lower the cost of capital) and the ability for projects to apply with their Development Consent Order planning approval pending (potentially accelerating delivery and boosting auction competition). 

In terms of auction design, offshore wind was placed on its own auction timeline, and the Secretary of State was given more information (albeit anonymised) on bids ahead of final budget setting, on the basis that a higher budget could be set where this presented good value for money for consumers. Whilst it is difficult to say how these changes have impacted on the result, clearly the increase in the offshore wind budget after sealed bids were received played a significant role in securing such a high level of capacity. The government’s initial budget announcement in October 2025 sparked significant controversy with industry leaders, trade bodies, and developers who were concerned that the figures (GBP900m for fixed-bottom, GBP180m for floating) were too low to meet the government's targets. The budget for fixed-bottom was then almost doubled to GBP1.79bn, suggesting that the government considered the “value for money” test to have been met.

While a positive outcome for developers in the sector, the sheer size of the increase does raise interesting questions around how the Secretary of State’s rights might be used in future rounds and how this might impact bidding strategies.

On to delivery

With the auction concluded, activity for the winning projects will shift from planning to execution, with coordinated resolution required across planning, construction and grid challenges.

Of significance is that capacity is concentrated in a few very large projects, notably Dogger Bank South, Norfolk Vanguard and Berwick Bank clusters (five of the six fixed-bottom projects are larger than any currently operating offshore wind farm). With so much of the government’s Clean Power 2030 plans relying on so few projects, project delays (whether due to shifting economics or delays in securing a key permit or grid connection) may have a significant impact that would be difficult to remedy in time for 2030. The size, and concomitant cost, of these projects will also bring financing challenges, with an unprecedented pipeline of financing now in prospect.

In relation to construction, we continue to see developers grapple with supply chain bottlenecks and exposure to volatile commodity prices. Against a backdrop of increasing demand placed upon limited global suppliers for specialist scopes of work (such as HVDC systems and installation vessels) and ongoing macroeconomic challenges, we expect that these trends will continue. Developers will need to be proactive in their procurement strategies to ensure that they can deliver to schedule and to budget within the overall time and cost parameters provided by a largely fixed CfD delivery window and strike price. The applicable Clean Industry Bonus requirement will also need to be met.

Aside from construction, securing grid access for offshore wind projects has become ever more challenging in recent years. According to NESO, the connections queue grew tenfold in the last five years, reaching over 700GW, around four times Great Britain’s projected total need in 2030.

In December, NESO published details of the reformed grid queue, replacing the “first come, first served” approach with the new “first ready and needed” model in support of the government’s Clean Power 2030 Action Plan.

Projects that establish they met the readiness criteria and are “strategically necessary” to achieving the government’s targets are to be prioritised (via a “Gate 2” agreement) and ostensibly given a connection date up to 2030 (phase 1 projects) or 2035 (phase 2 projects). Most offshore wind projects are expected to fare well in that regard, but the process is ongoing, and developers will be eagerly awaiting the release of “Gate 2” connection offers, now expected in the coming weeks according to NESO.

Changes proposed for AR8

Projects that were not successful in AR7 will be considering their options and whether participation in the upcoming AR8 might provide a viable alternative opportunity.

DESNZ has consulted on proposed “refinements” to apply for AR8 and future rounds. While some comprise primarily operational or mechanical refinements, there are several significant proposals worthy of consideration by stakeholders:

• Maintaining the Secretary of State’s rights over bid stack visibility for fixed-bottom offshore wind and expanding this right to other technologies. 

  As noted above, we expect that market participants would welcome greater clarity on how this right is anticipated to be utilised, given its evident potential to significantly impact auction outcomes.

• Implementing a permanent restriction on bidding previously surrendered CfD capacity into future allocation rounds. 

  This represents an extension to the temporary restriction imposed on AR7 and developers will be mindful that this flexibility will no longer be permitted. Previously some bidders into AR6 used the CfD’s “permitted reduction” mechanics to withdraw up to 25% of capacity they had been awarded under AR4 and rebid this into the AR6 auction clearing at a higher strike price. 

• Permitting a hybrid metering approach for single technology/multiple commercial arrangements by removing the requirement for each CfD facility to be metered as a separate Balancing Mechanism Unit (BMU) and instead metering at the point of generation using Supervisory Control and Data Acquisition (SCADA) data for sub-BMU calculations. 

  Some developers will be familiar with the changes made to the Balancing and Settlement Code in relation to this approach. The proposal will apply to: (i) multiple CfD facilities/phases of the same technology (without prejudice to the restriction on re-bidding referred to above); and (ii) CfD and non-CfD facilities of the same technology.

  Generators may wish to consider a form of hybrid metering under the new proposals as a means of reducing costs on site metering layout whilst flexibly incorporating elements of non-CfD generation. Any project looking to utilise hybrid metering will be subject to enhanced monitoring by the Low Carbon Contracts Company (LCCC).

• Introducing a requirement that applicants have a “Gate 2” connection agreement to be eligible to apply for a CfD and excluding projects with “Gate 1” connection offers under NESO’s connections reform process.

  This proposal aims to ensure that only projects with a firm connection date are eligible to proceed. Developers will undoubtedly be seeking clarity on their connection status during the connections reform process.

• Introducing a new technology category for Other Deepwater Offshore Wind (ODOW) to enable innovative foundation designs for deepwater sites.
• In anticipation of commercial-scale offshore floating wind, extending the Longstop Period to 24 months and reducing the Required Installed Capacity threshold to 85% to reflect the scale and complexity of future projects.

Next steps

While the successful projects focus on reaching a final investment decision, the consultation for proposed changes to AR8 closed at the end of January and others’ attention will soon turn to the auction timeline for the coming year. 

In terms of wider electricity market reform being conducted as part of the ongoing Review of Electricity Market Arrangements (REMA), developers, investors and lenders will be looking forward to greater clarity from the government on its approach to reformed national pricing. The National Pricing Delivery Plan was initially expected by the end of 2025 (as with the full REMA cost-benefit analysis), but we understand it is going through further review before being published. A holistic assessment of the proposals will be needed, and stakeholders will want to see a uniform and consistent approach across key policy areas to support continued deployment and investment in the offshore sector.

We will continue to follow these developments. In the meantime, please contact your usual A&O Shearman contact or the named contacts on this bulletin for further discussion.

Footnotes:

1. The clearing price of GBP91.20/MWh (in 2024 prices) equates to GBP65.45/MWh in 2012 prices, which is up 11% (year on year) compared to the GBP58.87/MWh (in 2012 prices) at which fixed-bottom offshore wind cleared in AR6.

2. The Scottish fixed-bottom project cleared separately in the auction intentionally to take account of higher network charges.