BP, RWE, Total win UK windfarm leases in controversial auction

Industry body says high bids could lead to higher renewables prices

BP, Germany’s RWE and France’s Total have emerged as the big winners in the first auction of UK offshore wind farm leases in a decade as oil majors look to diversify into renewables.

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The Crown Estate, which manages the British royal family’s property portfolio, on Monday said six projects, representing just under 8 gigawatts (GW) of capacity, were successful.

However, industry trade body RenewableUK was critical of the way the auction was carried out, saying prices had been pushed up by restricting the number of available sites in return for much lower electricity generation compared with the last lease sale.

BP, making its first foray into the UK’s offshore wind market, won two sites representing a total of 3 GW with joint venture partner, German regional utility EnBW.

The oil giant said it would make four £231m annual payments on each lease for the option to build two offshore wind farms before the projects reach final investment decision, but expected them to be operational in seven years.

“The two leases are highly advantaged, with strong wind resources and proximity to shore that make them attractive investment opportunities,” the company said in a statement.

Other winners in the latest auction included RWE, which has paid £247.6m, Macquarie's Green Investment Group and French oil giant Total (£124.5m), and a partnership between Spain’s Cobra Group and Flotation Energy (£44.7m).

If built, the projects could provide enough electricity to power about 7 million homes, said the Crown Estate, which is responsible for waters around England and Wales.

RenewableUK pointed out that in the last leasing round in 2010, 32 GW of potential wind farms were assigned, with no so-called “option fees” levied on bidders. The Crown Estate had previously set fixed annual option fees.

“The result of this leasing round shows that, while demand for new offshore wind projects has never been higher, too few sites were made available to meet this demand,” said RenewableUK deputy chief executive Melanie Onn.

“Any auction run on that basis will inevitably lead to high fees like these, and our concern is that this could ultimately mean higher costs for developers and consumers.”

“The option fees announced today totalling £879m per year, or £111m per GW per year, represent a very significant sum for developers. In comparison, developing and constructing a 1GW offshore wind farm currently requires investment of (around) £2.5bn.”