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Offshore wind leasing round 4 and details of UK ETS scheme – February 2021

We are pleased to present our policy note on Offshore Wind Leasing Round 4 and details of UK ETS scheme. Highlights of the note include:

Offshore Wind Leasing Round 4 – Tender Process Outcome

  1. The Crown Estate has released the preferred bidders for Leasing Round 4, amounting to 7.98 GW of potential capacity. The round saw significant participation from European oil and gas majors, as Total partnered with Green Investment Group for 1.5 GW and BP partnered with EnBW for two projects, each with a proposed capacity of 1.5 GW.
  2. Leasing Round 4 was highly competitive, with a lower supply of bidding capacity, relative to Round 3, and high demand from developers. It was also the first time that the option fees were part of the bidding process, as previously, they were fixed costs. Due to the combination of these factors, Round 4 resulted in significantly high option fees, summing up to a total of £879m for all projects. These costs must be paid annually until projects have reached final investment decision.
  3. The Crown Estate will now move to the next step, in which it will undertake a Plan-Level Habitats Regulations Assessment, before moving onto the agreement of lease which is aimed for Spring 2022.

The Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021

  1. The UK Government provided further clarification on the UK ETS scheme through the Auction Regulations on 11th February 2021. Of importance, BEIS has been appointed by HMT as the UK Auctioneer, and the Auction Reserve Price (ARP) of £15/tCO2 has been raised to £22/tCO2.
  2. Following the ARP increase, we expect total GB Carbon Prices to average £40-45/tCO2 in the next five years, with the UK ETS component being close to the ARP of £22/tCO2 due to an oversupplied market.
  3. An auction timeline will be published shortly, and the scheme is expected to commence no later than Q2 2021.

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