Closing post
Time for a quick recap.
Financial markets now only expect one more quarter-point interest rate rise by the Bank of England before it reaches the end of its rate-hiking cycle. That would take Bank rate up to 5.5%, possibly as soon as later this month.
The UK government has been criticised after no offshore wind developers took part in the government’s annual auction to support renewable schemes.
Porous concrete has been detected at the UK’s two busiest international airports, Heathrow and Gatwick.
Heathrow must also cut passenger charges by almost a fifth next year after losing an appeal to the UK competition watchdog.
China’s currency has slipped to a new 16-year low, after weak trade data this week.
A measure of UK employment trends used by the Bank of England has shown that employers fear a recesssion and are cutting back on new hiring.
Costa Coffee has recalled some of its range of sandwiches and wraps after it emerged that they could contain small stones.
Here are the rest of today’s stories:
FT: Porous concrete detected at Heathrow and Gatwick airports
The UK’s concrete crisis has spread to the country’s busiest airports.
The Financial Times is reporting that Heathrow and Gatwick have both detected RAAC, the type of concrete that recently forced hundreds of UK schools to close.
This shows the far-ranging prevalence of RAAC, which is prone to corrosion and cracking as it ages, the FT points out.
The airports say they were aware of the issue before the government ordered 147 schools to immediately shut buildings made with aerated concrete.
RAAC is a particular concern in buildings that have been poorly maintained, which shouldn’t include major international airports.
Chris Goodier, professor of construction engineering and materials at Loughborough University, and one of the UK’s few experts on Raac, told the FT the presence of the material poses much less of a threat at airports than at schools and hospitals.
Goodier says most airport maintenance staff will have been aware of the presence of the material for some time, explaining:
“There are people there running the place seven days a week with a big full-time maintenance team whose only job is to keep it running 24/7.”
“They’ve got money and they spend money because if they had to close a building it would cost them a lot.
UK interest rates now expected to peak at 5.5%
Newsflash: The Bank of England is expected to only raise UK interest rates one more time, to 5.5%, in its battle to cool inflation.
The money markets this afternoon indicate there is less than a 50% chance that Bank rate will rise above 5.5% this year, or in 2024.
Currently, UK interest rates are 5.25%, with the Bank broadly expected to raise them by a quarter of one-percent later this month.
But 5.5% could be the peak, the current trading in interest rate swaps suggests.
Reuters has the details:
Rate futures at 2pm GMT showed a 69% chance of a quarter-point rate rise to 5.5% on Sept. 22 after the BoE’s next meeting, down from more than 80% early this week.
The chances of a further rate rise to 5.75% stood at 46% by December and peak at 49% by February 2024, with investors expecting cuts in rates to begin in around a year’s time.
UK INTEREST RATE SWAPS SHOW LESS THAN 50% CHANCE THAT BANK RATE WILL RISE ABOVE 5.5% IN 2023 OR 2024
— First Squawk (@FirstSquawk) September 8, 2023
Earlier this summer, the money markets indicated UK interest rates would hit 6% as the BoE struggled to bring down inflation.
But in July, the consumer price index fell by more than expected, to 6.8%.
And on Wednesday, BoE governor Andrew Bailey predicted we will see a “quite marked” fall in inflation by the end of this year. He told MPs that the Bank of England is “much nearer” to ending its run of interest rates increases.
There has been “some interest” from potential buyers to snap up Wilko’s warehouses, where around 1,300 people worked before the company collapsed, according to the GMB union today.
The GMB says:
“We have been working with several associations with a view of finding potential buyers for the warehouses in the hope that they will re-employ many of you.
“We are pleased to say we have had some interest in this, and we will vigorously chase these up in the hope of gaining new opportunities for you.”
Earlier this week administrators said that 299 people would lose their jobs at the warehouses in Worksop and Newark.
More redundancies there have been expected as so far no one has bid to buy the sites.
This is very significant
— Sam Coates Sky (@SamCoatesSky) September 8, 2023
There is not a single offshore wind farm in today’s renewables auction announcement.
Ministers were warned the subsidies were too low at a time of rampant inflation, but thought industry bluffing.
They weren’t
Look at Economist graphic… pic.twitter.com/U2K3gBYFtZ
Short term cost saving leading to longer term higher energy bills.
— Sam Coates Sky (@SamCoatesSky) September 8, 2023
Here’s ex No10 energy advisor under Johnson, Sam Richards pic.twitter.com/OgPcroYABm
Following today’s auction flop, ministers must recognise that the economic breezes have shifted and that offshore wind, while still cheaper than the alternatives, is not as cheap as it was, our financial editor Nils Pratley writes:
He explains that the government should have heeded warnings from the industry that the cost of building offshore windfarms was rising, so they would not pitch to build turbines in the North Sea on the terms the government was offering.
As Nils explains:
Grant Shapps, the energy security secretary until last week, reacted to the looming crunch by fiddling around the edges. He refused to budge on the £44 maximum but added to the pot of money available to write contracts at that price. From offshore developers’ point of view, they were just being offered more of what they did not want. The tweak was never going to alter the economics.
A more generous interpretation is that ministers consciously played hardball and accepted the risk of a failed auction in the hope that prices settle down in time for next year’s event. That, at least, would have a superficial logic. Yet the practical problem is that any imagined “saving” will probably be consumed by the need to catch up to try to save the 50GW target. The developers’ negotiating hand has just improved for the next auction. Therein lies the sense of managing the expansion of windfarms at a steady pace.
The UK government’s “fiscal frugality” collided with rising renewable costs at today’s energy support auction, say Capital Economics.
They explain:
The UK government’s failure to award any new offshore wind-power contracts in its latest procurement round ultimately stems from bean-counting stinginess and is nothing that a lot of extra government investment won’t fix.
But with the days of ever-cheaper renewables behind us, the news supports our view that the green transition will put greater pressure on the public finances than many make out.
China's currency weakens as dollar surge continues
Elsewhere in the markets, China’s renmimbi has weakened to a new 16-year low today.
In onshore domestic trading, the yuan closed at its weakest since December 2007.
Reuters attributes the weakness to capital outflow pressures as China’s economy struggles, adding:
A growing yield gap with other major economies, particularly the United States, has also put fresh pressure on the yuan and a number of other emerging currencies.
Trade data released yesterday showed another drop in Chinese imports and exports, indicating its economy is not bouncing back from the Covid-19 lockdowns which ended at the end of last year.
A strong dollar is not helping the renmimbi either, as Victoria Scholar, head of investment at interactive investor, explains:
The dollar is on track for its longest winning streak since 2014, driven by a string of robust economic data points that suggest it could be more difficult for the Fed to end this rate hiking cycle.
Meanwhile the offshore yuan weakened to its lowest level on record against the greenback after China set its fixing at a two-month low overnight.
The weak economic backdrop in China which contrasts with the resilience of the US have both contributed towards widening interest rate differentials, a weaker yuan, and stronger US dollar.
Updated
In the financial markets, European stocks are on track for their longest losing streak in almost seven years.
The Stoxx 600, which tracks listed companies across Europe, has already fallen for seven days running – and is now down 0.1%. We’ve not seen eight days of losses since Octover 2016.
European stocks are having a tough time as the Stoxx Europe 600 Index has dropped for 7 consecutive trading days, the index's longest losing streak in 4.5 years pic.twitter.com/xn6m92Zchn
— Barchart (@Barchart) September 8, 2023
Investors are jittery about the state of the eurozone economy, after growth in the second quarter of 2023 was revised down to 0.1%, from an initial estimate of 0.3%.
Beijing’s crackdown on iPhone use is also weighing on the tech sector, after knocking Apple’s share price down.
Plus, there’s anxiety that central bankers will leave interest rates higher for longer than hoped, after US weekly unemployment claims fell yesterday.
CfD payments to generators have cumulatively cost the public £7.5bn gross. But the assets they have de-risked remain privately owned.
— Common Wealth (@Cmmonwealth) September 8, 2023
Public ownership, by contrast, is structurally cheaper and bolsters the public balance sheet.
Chart: @chrismwhayes. pic.twitter.com/porB6Mj1G7
Transatlantic broker Redburn Atlantic has published an informative note about today’s renewables auction results.
They point out that the possibility that no offshore wind contracts would be awarded was “widely understood”, due to…
.….the offshore wind ceiling price of £44/MWh for bids (2012 terms), which is uneconomic for offshore wind projects at today’s financial/supply chain costs.
While the implicit capital discipline shown by renewable developers is good in itself, the result is further evidence of the implied political challenge posed by the offshore wind industry - will regulatory bodies accept that offshore wind has become much more expensive in future auctions? They will need to if they want capacity expansion to come anywhere close to current targets.
This charts from Redburn Atlantic show the results of the latest auction (in light blue) vs last year’s auction (darker blue), for capacity:
And for the average clearing prices under the contracts for difference auction:
In another sign of weakening in the UK housing market, the number of planning permissions granted across England for new houses has fallen to a record low.
The Home Builders Federation (HBF) said planning permissions continued to fall “sharply”, with the number of homes approved in first half of 2023 down by 19%.
The latest data confirms industry warnings that in the midst of an increasingly “anti-development” policy environment and worsening economy, the number of homes built in the coming years could fall to record low levels, said the HBF.
Around 2,456 projects were granted planning permission during the second quarter of the year, the lowest since similar records began in 2006, said the report.
This number is 10% lower than the previous quarter and 20% lower than a year ago.
MP welcomes "landmark investment" in geothermal
Three geothermal projects have won government support in today’s auction for renewable energy support.
The Manhay, Penhallow and United Downs projects, all in Cornwall, were all allocated support through the Contracts for Difference Allocation Round, to produce a total of 12MW of power.
Conservative MP Kieran Mullan, who produced an academic study into geothermal for the government this year, has welcomed this “landmark investment”.
That report found that many areas with the greatest geothermal potential lie beneath the towns and cities most in need of investment.
Mullan says:
“The government has stepped up its investment in deep geothermal in a big way today, funding not one but three deep geothermal plants. This follows on from the first UK deep geothermal heat plant being in 37 years being switched on at the Eden project in Cornwall this summer.”
“This just proves the huge potential out there. These projects will deliver clean, reliable electricity that doesn’t wax and wane with the weather like wind and solar. I hope this is just the start of what could be an important part of our transition, particularly when it comes to heat where there are even more potential sites.
Deep geothermal energy is heating more than 250,000 homes in Paris and many more across Europe. It is a clean, green, reliable resource. I got to see for myself how quietly and efficiently this hot water can be utilised visiting a plant in Germany.
No one would know the little building I visited next to a park and a school was heating the local swimming pool, businesses, town hall and hundreds of homes.”
I’ve long campaigned for deep geothermal energy to become part of our energy mix. It’s fantastic that today, for the first time, the Government’s landmark renewable energy CfD scheme has awarded funding for not one, but 3 geothermal projects, totalling 12MW! Well done @GELtd! pic.twitter.com/DM9IrDHFLr
— Dr Kieran Mullan MP 🇬🇧 🇺🇦 (@KieranMullanUK) September 8, 2023
This is the report I produced for the PM on deep geothermal potential for the UK https://t.co/ylqrElgq2Q
— Dr Kieran Mullan MP 🇬🇧 🇺🇦 (@KieranMullanUK) September 8, 2023
Updated
Berkeley Group has become the latest house builder to be hit by slowing demand for new homes.
Reservations for new homes at the upmarket builder have fallen 35% by value in the last four months, reflecting the “elevated macroeconomic and political volatility”.
However, prices are “resilient” and it still expects to make a pretax profit of at least £1.05bn in the current year and beyond.
Like other builders, Berkeley complained about the planning system, and has not bought any land, saying:
“The complexity and protracted nature of the current planning system and lack of clarity surrounding certain regulatory changes affecting our sector, at a time of considerable uncertainty for the UK economy with persistent high inflation and interest rates, continues to deter investment into brownfield regeneration and the wider housebuilding sector.
Consequently, Berkeley has not acquired any land in the period and will only invest very selectively in new opportunities.”
Richard Hunter, head of markets at interactive investor, said:
“In some ways, Berkeley is a different beast to many of its competitors, with a potential edge coming from its mix of an exposure to London and the South East, higher-end properties and the regeneration of brownfield sites in which it is well accomplished. The group has also reined back its land acquisition, making no purchases in this period and with the intention of only investing very selectively in new opportunities.”
But he added:
“Berkeley is far from being immune to the wider issues of mortgage availability and affordability, planning bottlenecks, uncertain consumer propensity to buy and a cloudy outlook.”
World food price have fallen to their lowest level in two years, new data from the United Nations food agency shows.
The Food and Agriculture Organization’s (FAO) price index, which tracks the most globally traded food commodities, fell to 121.4 points in August, down from 124.0 for July. That’s the lowest since March 2021, according to Reuters.
It means global food prices are 24% below the peak reached in March 2022, after Russia’s full-scale invasion of Ukraine.
The drop reflected declines in the price indices for dairy products, vegetable oils, meat and cereals, while the sugar price index increased moderately, the FAO explains.
Government botches offshore wind auction, say Friends of the Earth
The UK government botched today’s offshore wind auction, say Friends of the Earth, who are urging the new energy secretary, Claire Coutinho, to sort out her “failing” department.
Mike Childs, Friends of the Earth’s head of policy, said:
“The failed offshore wind auction was highly predictable. The government has missed yet another open goal that would have boosted energy security and made household bills more affordable.
“Since energy bills shot up last year, ministers have refused to invest in home insulation, despite our housing stock being amongst the worst in Europe and failed to unleash the full potential of our vast onshore wind resources. This week’s wind reforms don’t go nearly far enough.
“Now it’s botched an auction that should have led to a boom in offshore wind with all the economic benefits this would bring. The new Secretary of State, Claire Coutinho needs to get a grip on her failing department - and quickly.”
Full story: ‘Biggest clean energy disaster in years’: UK auction secures no offshore windfarms
No new offshore windfarms will go ahead in the UK after the latest government auction, in what critics have called the biggest clean energy policy failure in almost a decade, our energy correspondent Jillian Ambrose explains.
None of the companies hoping to build big offshore windfarms in UK waters took part in the government’s annual auction, which awards contracts to generate renewable electricity for 15 years at a set price.
The companies had warned ministers repeatedly that the auction price was set too low for offshore windfarms to take part after costs in the sector soared by about 40% because of inflation across their supply chains.
The government confirmed on Friday that only 3.7 gigawatts of new clean energy projects secured a contract, compared with 11GW in the previous auction – a significant blow to the UK’s clean energy targets.
The winning projects include solar farms, onshore windfarms and a record number of tidal power projects. However, the absence of giant new offshore windfarms will make the UK’s climate targets far more difficult to achieve.
The government’s “energy security disaster” means the UK will miss out on billions in investment and may also push up bills for hardworking households, the Labour party warned.
Industry insiders said the three biggest offshore wind developers in the UK – SSE, ScottishPower and the Swedish company Vattenfall – were forced to sit out the bidding after ministers refused to heed their warnings.
UK firms cut back on hiring amid recession fears
A measure of UK employment trends used by the Bank of England has shown that employers fear a recesssion and are cutting back on new hiring.
The latest KPMG and REC, UK jobs report found that the number of employers hiring sank to its lowest since 2009, excluding the Covid-19 pandemic period, while the number of people looking for work remained steady.
One analyst said the report, compiled by S&P Global, indicated that the economy was showing clear signs of strain after 14 consecutive interest rate rises and put pressure on the central bank’s monetary policy committee (MPC) to halt further increases in the cost of borrowing at the next meeting later this month.
“In one line,” the jobs report supported “a swift conclusion to the MPC’s tightening cycle,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
The permanent staff placements index fell to 38.9 in August, from 42.4 in July. It averaged 54.2 in the second half of the 2010s, and 55.3 in 2022, said Tombs. A number below 50 indicates contraction.
The permanent staff availability index, which measures the number of people using recruiters to look for work, edged down to 60.3 in August, from 61.4 in July, but remained well above its 38.0 average in the second half of the 2010s, and its 37.6 average in 2022.
Salary rises also remained broadly steady, with the permanent staff salaries index at 58.2 in August, compared to 58.3 in July. It averaged 60.0 in the second half of the 2010s, and 71.8 in 2022, said Tombs.
“August’s jobs survey provides more ammunition to the core members of the MPC -governor Andrew Bailey and chief economist Huw Pill – who have recently expressed their view that interest rates probably don’t need to rise much further, if at all, in order to sustainably return inflation to the 2% target.”
The MPC regularly comments on REC surveys in its quarterly assessment of the economic outlook, using it as a benchmark for the health of the recruitment market.
Tombs cautioned that the REC survey had proved to be “too gloomy in signalling declining employment” over recent months compared with official employment data from the Office for National Statistics, which has shown permanent staff numbers edging up.
Tombs said:
“The survey is based on recruiters, not firms, so it isn’t registering the recent trend for businesses to hoard labour, due to fears they may not easily be able to replace them further ahead.”
A separate survey of employers by S&P Global showed that they were still adding to their workforces in August, though only modestly.
“We think the reality lies somewhere in between the REC and S&P surveys, and that employment likely will flatline in the second half of this year.
Neil Carberry, REC chief executive, said:
“August is always a slower month for new permanent roles, but this has been exacerbated in 2023 by the lack of confidence to start the new hiring we saw among firms in the Spring.
“As inflation begins to drop, it is likely that firms will return to the market later in the year – employer surveys suggest confidence may be returning. But for now, the labour market has more slack than it has since the heights of the first lockdown. Firms continue to use temps to fill any short-run needs, with the small drop in August representing little change from the past few months.”
The latest bulletin from the ONS showed employment and job vacancies were down, while unemployment and redundancies were up.
European gas prices jump as Australian workers begin strike
Elsewhere in the energy world, European gas prices have jumped after some Australian energy workers began a strike.
The month-ahead price of European natural gas is up 15% this morning, to €35.35 per megawatt hour, the highest since Monday.
Strikes start at major Chevron Australia LNG projects, no talks planned. Natural Gas TTT is ⬆️🔥$VAR $AKRBP $EQNR $XOM $Oil $Gas $STOCKS $INVEST $MONEY $BUY pic.twitter.com/aKIgpt4uiX
— Shippinginvestor 🇳🇴 (@TveitVagen) September 8, 2023
UK month-ahead gas contracts are up 9.5% at 87p per therm.
The jump came after liquefied natural gas workers working at Chevron sites in Australia began partial strikes today, after talks failed to reach an agreement in a dispute over pay and conditions.
The Chevron units, at Gorgon and Wheatstone, produced about 7% of global LNG supply in 2022 according to Bloomberg.
Chevron Australia LNG workers start strike. What happens now? https://t.co/kuJ8JsD7qb
— Reuters Energy and Commodities (@ReutersCommods) September 8, 2023
Updated
The renewables auction outcome is a major setback to the acceleration of green energy in the UK, warns Simon Virley CB, Vice Chair and Head of Energy and Natural Resources at KPMG:
“The lack of new offshore wind projects in the UK Contracts for Difference (CfD) auctions is a major setback at a critical time when we should be looking to accelerate renewables. After record breaking rounds in previous auctions, this is the first time since CfDs launched in 2015 that there have been no new offshore wind projects announced and will call in to question the Government’s target of 50GW by 2030 and the ambition to get to a Net Zero power system by 2035.
Virley adds that the government must urgently review the parameters of its auction ahead of the next round of bidding, to recognise the need for higher guaranteed prices for offshore wind:
“This outcome reflects the growing inflationary and supply chain pressures affecting the offshore wind sector in recent years, which is making it harder to deliver these projects at the strike prices and other auction parameters set by the Government. The Government will need to review urgently these parameters ahead of Auction Round 6, if it wants the British success story on offshore wind to continue.”
RenewableUK, the trade associaion for the renewable energy industry, is calling for urgent action to restore investor confidence, after offshore energy developers shunned the UK’s renewables auction.
They warn that today’s clean power auction risks undermining targets to boost energy security and could also jeopardise the industrial opportunities of offshore wind.
RenewableUK explains that the results of the 5th round of Contracts for Difference (CfD), published this morning, show that 3.7 gigawatts (GW) of new renewable capacity was successful overall.
That’s the lowest level since 2017 – and just over a third of the 10.8GW in last year’s auction.
With no offshore wind developers taking part in this year’s auction, future auctions will now have to support 4.5-5.8GW a year to get the UK on track to hit the Government’s 50GW offshore wind target for 2030
RenewableUK CEO Dan McGrail says today’s results are “a major blow for consumers”:
“Industry has warned that rising costs should have been properly priced into this auction. If the UK isn’t offering prices that allow investors to make a return, they will simply invest elsewhere. These results should set alarm bells ringing in Government, as the UK’s energy security and net zero goals can only be met if we have offshore wind as the backbone of our future energy system. We need the Government to show that the UK is open for business.
The failure to secure any new offshore wind is a major blow for consumers that could, and should, have been averted. Building wind farms means we stabilise the cost of energy for the long-term and reduce our dependency on fossil fuels, prices of which can be manipulated by dictators and despots. It’s not too late to get back on track, but without urgent changes, we risk pricing ourselves out of the global race for clean energy investment.
Renewables don’t only enable us to fight climate change, they also help to drive economic growth, creating jobs and supporting supply chains across the UK. This result for offshore wind means putting economic growth on hold, with over £10bn in investment and thousands of jobs delayed.
Updated
Chris Hayes, senior data analyst at think tank Common Wealth, argues that it makes more sense to make direct public investment on renewable energy projects, rather than guaranteeing prices to private firms.
Following this morning’s auction, Hayes says:
“The failure of this allocation round relative to initial expectations is testament to the limits of de-risking private investment as a route to mass buildout of renewables.
This regime subordinates our future energy system to private capital returns of a size and certainty that can only be secured at a great expense to the public, especially in this new climate of economic turbulence. Direct public investment could deliver this at a lower cost and with less operational vulnerability to changing circumstances.”
The auction failure - a green capital strike - underscores why an energy transition guided by the profit imperative is risky.
— Mathew Lawrence (@DantonsHead) September 8, 2023
Companies will now demand higher subsidies and/or increase prices to restore margins. Or they’ll withhold investment.
The public loses, either way. https://t.co/frO1YmNFuy
Newsnight’s economics editor, Ben Chu, has analysed today’s renewables auction:
This is the context for the latest government renewables auction, which has failed to see any bids for offshore wind - look at the pace at which offshore wind installation needs to pick up to hit the government's *own* 2030 50GW target 👇 pic.twitter.com/snzszbw3Os
— Ben Chu (@BenChu_) September 8, 2023
....Reminder: the 2030 target was ratcheted up from 40GW in the Conservative manifesto to 50GW in the April 2022 British Energy Security Strategy in the wake of the Russian invasion of Ukraine...https://t.co/8YfWnGayGP
— Ben Chu (@BenChu_) September 8, 2023
....at that time the then business secretary, Kwasi Kwarteng, justified the decision saying: "Cheap renewables are our best defence against fluctuations in global gas prices."
— Ben Chu (@BenChu_) September 8, 2023
Investment bank Jefferies says today’s renewables auction highlights the need for “a more joined-up approach between industry and government” to progress offshore wind development in the UK.
It is “simply mind blowing” that the UK government has failed to attract a single bid for new offshore wind projects, says Alethea Warrington, senior campaigner at climate charity Possible.
This negligence will lock us into reliance on dirty, expensive gas power for even longer. It is incredibly disappointing that, once again, the government has failed to seize the opportunity to sufficiently increase the UK’s supply of clean, cheap renewable energy.
“After a summer of record-breaking global heatwaves and as we face another winter of unaffordable energy bills, people across the UK will be unable to understand why the government is unwilling or unable to get on with the job of getting the UK off expensive, polluting gas with wind and solar power. The amount of new renewable energy which is being permitted to come through via the Contracts for Difference auctions is just far too small, and leaves us reliant on polluting, unaffordable power. Billpayers and our climate will pay the price for this poor policy-making by the government.
“The government must update the Contracts for Difference price caps to allow a new generation of renewable energy to power this country, bring down bills and slash our emissions.”
Seven tidal stream projects, which harness the power of the gravitational pull of the moon and the sun using floating or sea-bed mounted turbines, have secured contracts in the UK Government’s latest renewable auction.
They will generate an extra 53MW of tidal stream capacity by 2028.
Here’s the details:
Scotland
SAE Renewables, secured 21.94MW of capacity (Pentland Firth, MeyGen)
Orbital Marine Power, secured 7.2MW (Orkney, EMEC)
Magallanes secured 1.5MW (Orkney, EMEC)
Wales
Hydrowing secured 10MW (Ynni’r Lleaud)
Verdant secured 4.9MW (Anglesey, Morlais)
MOR Energy secured 4.5MW (Anglesey, Morlais)
Magallanes secured 3MW (Anglesey, Morlais)
Richard Arnold, policy director of the Marine Energy Council, says:
“This is a fantastic day for the industry and proof that with the right support tidal stream energy can play a key role in the UK’s future energy mix.”
“Successive support in renewable auctions could deliver over 100MW deployed in the UK by 2028. This will see more tidal stream projects in UK waters than the rest of the world combined.
The Government’s failure to recognise the impacts of inflation in supply chains could cost billpayers £1bn a year in lost savings from offshore wind, the Energy and Climate Intelligence Unit (ECIU) says.
Jess Ralston, Energy Analyst at the ECIU, explains:
“The renewables that were secured at this auction are still lots cheaper - a third for some technologies - than wholesale power prices which are set by gas.
“But the elephant in the room is the renewables that weren’t secured. We’ve potentially missed out on bill savings worth over £1bn from no offshore wind bids, which again would be far cheaper than the alternative gas.
That’s bad news for households, the industry and the Government - not a good look for outdated Treasury rules to be blocking cheaper bills ahead of the next Election.
“The industry says our offshore wind market, the second largest in the world, is ready to deliver. Will the government rerun this auction with sensible strike prices”
The Contracts for Difference framework (which guarantees a minimum price for energy) must be “urgently reformed” following today’s CFD auction results, argues Sue Ferns, senior deputy general secretary of UK union Prospect.
Ferns says
“These results are a disaster for the UK’s offshore wind industry.
“Businesses and workers stand ready to deliver a rapid rollout of renewables but the government’s failure to set sustainable prices is holding the industry back.
“This is the latest sign that the government has given up on bringing down bills, creating clean energy jobs, and meeting its climate targets.
“The Contracts for Difference framework must be urgently reformed if we are to have any hope of decarbonising the energy system and delivering good jobs in the process.”
Sam Richards, founder and campaign director of Britain Remade, says the government was complacent and incompetent for failing to heed industry warnings that the cost of offshore wind turbines had jumped sharply:
“The failure to award a single contract for offshore wind in the latest round is the direct result of the Government’s complacency and incompetence in the rules they set for the latest auction. This catastrophic outcome will cost hard-pressed billpayers £1bn a year.
“Ever since the Contracts for Difference system was introduced in 2014 industry has driven down costs at every single auction round – to the point that, for a time, offshore wind farms were 9 times cheaper than new gas plants.
Yet because of the war in Ukraine the costs of core materials used in offshore turbines such as steel, aluminium and copper have skyrocketed, as they have for businesses across the economy.
Despite this, Ministers and mandarins decided to ignore warnings from the industry that this would mean, for a short time, the cost of offshore wind would rise - while still being significantly cheaper than new gas plants.
“By capping the price the sector could bid at too low, Government set it at a level that made it impossible for investors to meet their costs. This will condemn consumers to higher bills than necessary and means Britain loses out on vital jobs and billions in investment.
“At the same time as the Government capping the price at an unrealistic level, ministers have also failed to deliver the necessary planning reforms that will speed up delivery and cuts costs. It cannot be right that it takes up to 13-years to build an offshore wind farm, when construction takes only 2 years.”
The failure of the UK government’s auction for offshore wind to attract any bids is the latest sign of trouble in an industry that’s crucial to meeting net zero goals.
So says Bloomberg’s energy correspondent, Javier Blas, who explains:
Only 3.7 gigawatts of fresh projects cleared in the government’s fifth auction round for new renewables, marking a huge drop from the almost 11 gigawatts that were given contracts in last year’s allocation round.
The main reason for the huge fall in new capacity was the lack of offshore wind, which is facing rising financing and supply chain costs.
A UK government auction for offshore wind has failed to attract any bids — the latest sign of trouble brewing in the renewable energy industry | #windpower https://t.co/4C6uLRW8MO
— Javier Blas (@JavierBlas) September 8, 2023
Greenpeace: it's a monumental failure
Greenpeace says today’s “failed renewables auction” is the biggest disaster for clean energy in almost a decade, and will put the UK’s decarbonisation target in jeopardy.
Greenpeace UK’s policy director, Doug Parr, said:
“This monumental failure is the biggest disaster for clean energy in almost a decade. Thanks to cost pressures and inept government policy, this auction round has completely flopped - denying bill payers access to cheap, clean energy and putting the UK’s legally binding target of decarbonising power by 2035 in greater jeopardy. It leaves the UK more dependent on expensive, imported fossil gas.
“Offshore wind is one of the cheapest and cleanest forms of power there is, but in an effort to save consumers pennies on their energy bills, the government is costing them pounds. We need urgent reforms to the way these contracts are awarded and smart changes in government policy to unlock private investment and remove planning bottlenecks. If they don’t, the new renewables - which are essential for lowering bills, increasing energy security and slashing emissions - simply won’t get built.”
Concern in Wales over wind auction flop
There is concern and disappointment in Wales over what the offshore wind auction flop means for Erebus, the planned floating windfarm off Pembrokeshire, my colleague Steven Morris reports.
Plaid Cymru’s environment spokesperson in Westminster, Ben Lake, said:
“Today’s news is deeply disappointing. The Erebus project is the first of its kind in Wales, and would have paved the way for further offshore wind developments, helped to lower energy bills, and make an important contribution to the economy of southwest Wales.
“Despite repeated warnings from the industry, the UK government failed to factor rising costs into the auction process, making this flagship project less competitive. The Irish government, on the other hand, ran their auction in May with a framework that recognised current supply chain costs and secured investment in four offshore wind farms. Wales is losing to Ireland due to the UK government’s poor planning.”
The director of RenewableUK Cymru, Jess Hooper, said:
“As Wales’ first floating offshore wind project, Erebus is entirely dependent on this form of revenue support to succeed, and the success of Erebus is critically important not only to Wales and the wider south west region, but also for the UK government’s own floating offshore wind targets.
This result will now delay investment decisions for developers, supply chain companies, ports and infrastructure, all with knock-on effects.”
ScottishPower: It's a multi-billion pound lost opportunity
ScottishPower, which operates several offshore wind projects off the UK coast, has revealed it did not submit any bids to the contract-for-difference (CfD) support scheme.
Keith Anderson, ScottishPower CEO, says today’s auction results is “a multi-billion pound lost opportunity” to deliver low-cost energy for consumers, and also “a wake-up call for Government”.
Anderson adds:
“The CfD process is recognised globally as a lynchpin of the UK’s offshore success, but it also needs to flex to keep pace with the world around it.
We all want the same thing – to get more secure, low-cost green offshore wind built in our waters. ScottishPower is in the business of building windfarms and our track record is second to none in terms of getting projects over the line when others haven’t been able to. But the economics simply did not stand up this time around.
“We need to get back on track and consider how we unlock the billions of investment in what is still one of the cheapest ways to generate power and meet the UK’s long-term offshore wind ambitions for the future.”
Ed Miliband is now telling Radio 4’s Today Programme that today’s news is an “absolute disaster for Britain”, and an “absolute condemnation of the government’s energy policy”.
He adds:
They are trashing the crown jewels of our energy system, and it was all totally avoidable.
Miliband explains that failing to increase the guaranteed price for offshore wind projects, to recognise increased costs, was a “totally self-defeating false economy”; it will mean the UK uses more imported gas instead.
Updated
Labour: this is an energy security disaster
The Labour party say the news that no offshore wind projects were successful in the Government’s latest auction for renewables support is an “energy security disaster”.
Ed Miliband MP, Labour’s Shadow Energy Security and Net Zero Secretary, says ministers failed to heed warnings that the guaranteed price offered for electricity by the government was too low.
“The news this morning is an energy security disaster and a £1 billion Tory bombshell that will push bills up for hardworking families. The Conservatives have now trashed the industry that was meant to be the crown jewels of the British energy system - blocking the cheap, clean, homegrown power we need.
“Ministers were warned time and again that this would happen, but they did not listen. They simply don’t understand how to deliver the green sprint, and Rishi Sunak’s government is too weak and divided to deliver the clean power Britain needs.
“This is just the latest episode in the Tories’ 13 years of failed energy policy: they broke the onshore wind market, they undermined the solar industry, and they caused chaos with botched home insulation. Every family and business are paying the price for these failures in higher energy bills, and our country remains exposed.
“Only Labour can get Britain building and deliver the clean energy we need to cut bills and make the UK energy secure, with our plan for clean power by 2030.”
Updated
Goverment: record number of renewables projects supported
Despite today’s failure to award support to any offshore wind projects, the government says a “record number of renewables projects” have been awarded Government funding today.
The Department for Energy Security and Net Zero says 95 new projects have been awarded funding from its renewables scheme.
They will deliver 3.7GW of clean homegrown energy, enough to power the equivalent of two million homes.
That include onshore wind, solar, and tidal, they say, “helping to grow the economy and increase UK energy security”.
Energy and Climate Change Minister Graham Stuart said:
“We are delighted that our first annual Contracts for Difference auction has seen a record number of successful projects across solar, onshore wind, tidal power and, for the first time, geo-thermal.
But what about the failure to award any contracts to offshore wind?
Stuart says the government will ‘work with industry’, to hit its offshore wind goals:
“Offshore wind is central to our ambitions to decarbonise our electricity supply and our ambition to build 50GW of offshore wind capacity by 2030, including up to 5GW of floating wind, remains firm.
The UK installed 300 new turbines last year and we will work with industry to make sure we retain our global leadership in this vital technology.
The Department for Energy Security and Net Zero says inflation, and supply chain problems, led to no contracts being awarded to offshore wind contracts this morning:
While offshore and floating offshore wind do not feature in this year’s allocation, this is in line with similar results in countries including Germany and Spain, as a result of the global rise in inflation and the impact on supply chains which presented challenges for projects participating in this round.
Introduction: UK offshore wind auction flops
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain’s clean energy ambitions have been dealt a painful blow this morning, as a subsidy auction to support new renewable energy projects awarded no contracts for offshore wind projects.
Critics are calling the flop the biggest clean energy policy failure in almost a decade.
So what went wrong with the UK’s flagship renewables scheme? Industry insiders say ministers failed to heed warnings that they had set the auction prices too low, failing to adjust for the soaring costs faced by renewable energy developers when they build offshore wind.
The auction uses a mechanism known as contracts for difference, which guarantee consumers will pay a fixed price for the energy generated by the bidder. When wholesale prices are lower, subsidies added to customer bills top up the difference; when wholesale prices are higher, developers backpay the difference.
That fixed cost, though, appears to have been set too low to attract bids, meaning the government’s target of reaching 50GW of offshore wind by 2030 could be in jeopardy.
Contracts have been awarded for onshore wind, solar, geothermal and tidal stream projects, data released by the government shows.
But the failure to award offshore contracts will damage Rishi Sunak’s plans to meet climate targets and drive down energy bills, just as the prime minister flies to India for the G20 leaders summit.
My colleague Jillian Ambrose reports:
Nearly all the biggest offshore wind developers in the UK were forced to sit out of the bidding after ministers refused to increase the maximum price for the auction, despite a 40% increase in the cost of manufacturing and installing turbines due to inflation.
The government’s failure to secure more than one/two offshore wind farms was described by Greenpeace as “the biggest disaster for clean energy policy in the last eight years” because it risks jeopardising the UK’s plan to triple its offshore wind power capacity by 2030, and casts doubt on Britain’s climate targets.
Renewable energy developers submitted sealed bids in the auction in the first half of August; the most competitive proposals were then ranked, with contracts awarded to projects offering the lowest cost to energy-bill payers.
But there had already been warnings that firms would need to receive higher maximum prices, after rising costs forced Vattenfall to cease working on the multibillion-pound Norfolk Boreas windfarm.
We’ll have full reaction to the auction results shortly
The agenda
7am BST: German inflation report for August
1.30pm BST: Canadian employment report for August
5pm BST: Russian inflation report for August
