Clean Energy Auction 2025

In May 2025 Riviera Maritime published an article about the anticipated launch of a UK energy auction in the coming August (Foxwell, 2025). While this brief account mentions many of the key features of the auction, it assumes a certain familiarity with the process and its background on the part of its readers, who are likely to be members of the maritime, offshore and energy business communities. Since the subject is of wider interest, some of the issues affecting the auction will be discussed below to provide a more complete picture of the auction and its context.

Policy and the energy auctions

A recent policy development affecting the auction is the UK’s Clean Power 2030 Action Plan. This set out targets for clean energy which include producing at least 95% of Great Britain’s generation from clean sources. This would reduce “the carbon intensity of our generation from 171gCO2e/kWh in 2023 to well below 50gCO2e/kWh in 2030.” Achieving the target would require “rapid deployment of new clean energy capacity across the whole of the UK” and figures are given for the necessary expansion of offshore wind, onshore wind, and solar power, as well as battery capacity and long-duration energy storage. Development is needed in technologies such as carbon capture, utilisation & storage and hydrogen, and in consumer-led flexibility (GOV.UK, 2024a).

The short time frame of the Action Plan puts the 2025 auction into a context different to those of its predecessors. In 2008 the UK committed to reducing its greenhouse gas emissions by 80% compared to 1990 levels by 2050, giving a 42-year time frame (CCA, 2008). This reduced to 31 years by 2019 when the emissions target was changed from 80% to 100% (CCATA, 2019). The 2024 Action Plan puts the present auction into the context of a five-year plan.

The financial investment needed each year to 2030 is estimated at £40 billion, “much of which will be private investment”. Upgrading the planning system is vital since around “twice as much new transmission network infrastructure will be needed in the nation’s grid by 2030 as has been built in the past decade”. The 2030 Action Plan makes many references to the Contracts for Difference (CfD) scheme, which is seen as necessary to ensure that the 2030 Plan “can procure the capacities needed to hit the target.”   (GOV.UK, 2024a).

Contracts for Difference and the strike price

These contracts “incentivise investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with direct protection from volatile wholesale prices, and they protect consumers from paying increased support costs when electricity prices are high” (GOV.UK, 2024b).

The contracts are between the developers of renewable projects and the Low Carbon Contracts Company (LCCC) which is owned by the UK government. The Contracts for Difference (CfD) scheme and the way that it promotes renewable energy use are explored in a 2023 article from the energy broker Energy Solutions. The scheme is designed “to incentivize investment in renewable energy by providing generators with stable and predictable revenue streams.” A key component is the “strike price” for the renewable electricity produced by a project. This is a “pre-agreed price that the generator will receive for each unit of electricity they produce” and is intended to offer the generator long-term revenue stability, thus reducing the risk associated with a renewable generation project (Randall, 2023). The strike price reflects the cost of investing in a specific low-carbon technology over an agreed period (now increased from 15 to 20 years) and it is index linked to inflation to produce the price received by the developer for the electricity it supplies. If the market price of electricity is below the strike price, the government pays the developer the difference, via the Low Carbon Contracts Company; if the market price is above the strike price, the developer pays back the excess to the LCCC.

The Energy Auction process

Bidders in the auction seek to obtain a Contract for Difference, and they compete by submitting a proposed strike price for their project in the form of a sealed bid; the lowest bids in a project area win CfDs until the budget is exhausted. There have been six auctions, known as allocation rounds, so far, in which different renewable technologies have competed against each other for a contract. The success of an allocation round is not guaranteed; ceilings can be placed on strike price bids, and in Allocation Round 5 of 2024, the ceiling was set below an economic level for offshore wind projects, resulting in no bids in that area (Foxwell, 2025).

Recent comments

Mention was made above of the increase in the length of CfDs in the 2025 allocation round. Further rule changes are noted by CMS Law-Now, such as relaxation of eligibility criteria for certain offshore wind projects, phased CfDs for others, and increased levels of support for onshore wind, offshore wind, and tidal stream projects (CMS 2025). Energy UK presents a critical and more detailed discussion with data on earlier allocation rounds (Energy UK, 2025). In a July 2025 press release, RenewableUK noted that projects awarded contracts in the 2025 allocation round can be built in time to help reach the targets of the 2030 Action Plan, and that offshore wind projects totalling 20 gigawatts can bid in the current round, more than the UK’s present offshore wind capacity. Changes in the budget-setting process can enable procurement of projects above the initial budget if they are deemed to be good value for money for consumers. The article advocates greater flexibility for developers on the delivery milestones for their projects in view of supply chain and construction challenges (RenewableUK, 2025)

References

 

CCA, 2008, Climate Change Act 2008, Legislation.gov.uk, online, accessed 29 August 2025

https://www.legislation.gov.uk/ukpga/2008/27/contents

CCATA, 2019, The Climate Change Act 2008 (2050 Target Amendment) Order 2019, Legislation.gov.uk, online, accessed 29 August 2025

https://www.legislation.gov.uk/uksi/2019/1056/article/2/made

CMS, 2025, UK government publishes key AR7 documents and final response to consultation, CMS, online, accessed 27 August 2025

https://cms-lawnow.com/en/ealerts/2025/07/uk-government-publishes-key-ar7-documents-and-final-response-to-consultation

Energy UK, 2025, Energy UK Explains: Allocation Round 7 (AR7), Energy UK, June 2025, online, accessed 27 August 20205

https://www.energy-uk.org.uk/wp-content/uploads/2025/06/Energy-UK-Explains-Allocation-Round-7.pdf

Foxwell, D., 2025, UK to launch much anticipated energy auction in August, Riviera Maritime, online, accessed 27 August 2025

https://www.rivieramm.com/news-content-hub/news-content-hub/uk-to-launch-much-anticipated-energy-auction-in-august-85028#

GOV.UK, 2024a, Clean Power 2030 Action Plan: A new era of clean electricity, GOV.UK, online, accessed 29 August 2025

https://assets.publishing.service.gov.uk/media/677bc80399c93b7286a396d6/clean-power-2030-action-plan-main-report.pdf

GOV.UK, 2024b, Contracts for Difference, GOV.UK, online, accessed 27 August 2025

https://www.gov.uk/government/collections/contracts-for-difference

Randall, T., 2023, Contracts for Difference Energy Explained (Cfd), Energy Solutions, online, accessed 29 August 2025

https://www.energybrokers.co.uk/news/electricity/contracts-for-difference-energy-explained-cfd

RenewableUK, 2025, Key details of next clean power auction provide clarity for investors in vital new renewable energy projects, RenewableUK, July 2025, online, accessed 27 August 2025

https://www.renewableuk.com/news-and-resources/press-releases/key-details-of-next-clean-power-auction-provide-clarity-for-investors-in-vital-new-renewable-energy-projects/

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