The next round of the UK Government’s Contracts for Difference (CfD) scheme, Allocation Round 8 (AR8), has the potential to deliver on the UK’s long-term ambitions for the sector.
Marine Energy Wales, on behalf of its members, is urging ministers and government officials to use AR8 not simply to buy low-cost electricity, but to shape the next phase of Britain’s offshore energy economy, particularly when it comes to tidal stream, floating offshore wind and deep-water offshore wind.
Tidal Stream
For tidal stream developers, the central ask is straightforward: the budget allocated to Pot 2 should be sufficient to contribute to a target of contracting 1GW of tidal stream by 2035.
The previous auction round, Allocation Round 7a (AR7a), saw reduced support in real terms for tidal stream technology. Without a target and aligned budget, the UK risks losing momentum in a sector where it is currently a global leader.
Marine Energy Wales also believes that the CfD framework undervalues tidal stream, because it currently assesses technologies on strike price, rather than the system benefits each can provide.
Unlike wind and solar, tidal generation is highly predictable years in advance. That predictability can reduce balancing requirements and lower storage costs across the wider electricity system. Industry analysis linked to the TIGER programme suggests tidal stream could eventually save hundreds of millions annually in system balancing costs as deployment scales.
The sector also points to a familiar renewable energy trajectory: costs fall through deployment. According to analysis from the Offshore Renewable Energy (ORE) Catapult, tidal stream costs could decline from around £260/MWh today to below £90/MWh at 1GW deployment, with more optimistic scenarios projecting costs as low as £50/MWh by 2035.
Beyond energy economics, the industry sees tidal stream as an industrial strategy opportunity. Marine Energy Wales highlights evidence showing tidal stream delivers unusually high domestic economic value, with strong UK supply chain participation and significant employment intensity in coastal communities.
That wider economic case is becoming increasingly important as policymakers attempt to link energy policy with regional growth, levelling up and energy security objectives.
Floating Offshore Wind
AR7 secured CfDs for two important test and demonstration projects; Erebus in the Celtic Sea and Pentland in Scottish waters. Together, they represent nearly 200MW of floating wind deployment and a critical opportunity to generate meaningful learning.
AR8 should continue to provide a route to market for the remaining test and demonstration projects. In fact, Marine Energy Wales believes test and demonstration projects like the above should be prioritised in every future allocation round until this phase is complete.
The Crown Estate’s Floating Offshore Wind Leasing Round 5 has awarded seabed rights for multi-gigawatt developments in the 2030s. Those projects will rely heavily on the lessons learned from today’s smaller demonstrators.
Test-and-demonstration schemes perform several functions simultaneously:
- Prove technology performance in real operating conditions
- Build supply chain capability and port infrastructure ahead of scale-up
- Develop operational expertise and maintenance practices
- Inform consenting decisions and environmental monitoring approaches
- Reduce technology risk and financing costs for later commercial projects.
The window for early learning is finite. Once commercial-scale projects dominate the pipeline, the opportunity to de-risk them closes.
Deep-Water Offshore Wind
The Department for Energy Security and Net Zero (DESNZ), has indicated that AR8 could open a formal route to market for deep-water offshore wind.
This is a significant opportunity for Welsh Waters and the Celtic Sea in particular, where water depths exceed the commercial range of conventional fixed-bottom foundations.
Marine Energy Wales believes deep-water offshore wind projects should compete within the same framework as floating offshore wind, without separate ringfences or bespoke strike prices.
A technology-neutral approach within a shared pot would allow different floating and deep-water concepts to compete directly while simplifying auction design.
Deep-water offshore wind is expected to use many of the same ports, fabrication facilities and assembly infrastructure already being developed for floating wind. In theory, this creates a reinforcing industrial ecosystem rather than competing technologies.
The CfD Scheme
The Contracts for Difference scheme is the UK Government’s primary mechanism for supporting low-carbon electricity generation and accelerating renewable energy deployment.
Designed to encourage investment in technologies with high upfront capital costs and long operational lifetimes, the scheme provides developers with protection against volatile wholesale electricity prices, while also shielding consumers from excessive subsidy costs when market prices are high.
Under the CfD system, eligible renewable energy developers compete in periodic allocation rounds by submitting sealed bids. Projects compete for contracts that guarantee a fixed “strike price” for the electricity they generate.
There have been 7 auctions, or allocation rounds, to date, which have seen a range of different renewable technologies competing directly against each other for a contract.
Since its launch, the CfD mechanism has become one of the defining policy tools behind the UK’s rapid expansion in offshore wind and other renewable technologies. However, as newer technologies such as tidal stream and floating offshore wind seek to move from test and demonstration to commercial scale, debate is intensifying over whether the current auction structure adequately reflects their long-term strategic value.