[Learning from Offshore Wind in the UK] ① How It Became Cheaper Than Gas Power: Reducing Uncertainty Through Revenue Guarantees

Transition to CfD Auction System in 2014
Stable Revenue Guaranteed for 15 Years After Setting Strike Price
Levelized Cost of Energy Down 61.9% Over 10 Years
Nine Times Cheaper Than Gas-Fired Power in 2022
UK Also Struggles With Output Curtailment
24 Billion Pounds Invested in Grid Expansion

About 6 kilometers off the coast of Liverpool Bay in northwest England, 320 wind turbines are spinning vigorously in the strong sea winds. The wind farm, with a total capacity of 348MW built in two phases, supplies electricity to households and businesses in Liverpool. During the '2025 Offshore Wind Training for Journalists' held on June 26 (local time) by the Korea Journalists Association and Next, a Liverpool city official explained, "Three additional fixed offshore wind farms and one floating wind farm are scheduled to be installed in this area in the future."

The UK is a leading example of a country that has successfully driven energy transition by utilizing its abundant wind resources. According to the National Grid Electricity System Operator (NESO), wind power accounted for the highest share among all power generation sources in the UK for the first time last year, reaching 30%. Thanks to wind power, the share of renewables rose to 51% of total generation last year. In particular, offshore wind supplies 17% of the UK's total electricity, playing a central role in the expansion of renewable energy.

The share of offshore wind is expected to increase further. In its '2030 Clean Power Implementation Plan' announced in December last year, the Department for Energy Security and Net Zero (DESNZ) committed to expanding offshore wind capacity from the current 15GW to between 43GW and 50GW.

"Lowering Financing Costs by Reducing Uncertainty"

The key policy tool for achieving these aggressive targets is the Contract for Difference (CfD) scheme. The UK previously operated a Renewables Obligation (RO) system, similar to Korea's Renewable Portfolio Standard (RPS), but switched to the CfD auction system in 2014. CfD sets a 'strike price' and guarantees stable revenues for 15 years. If the wholesale electricity price falls below the strike price, the government compensates the operator for the difference; if it rises above the strike price, the government recoups the extra profits.

Pete Chalkley, director of the Energy and Climate Intelligence Unit (ECIU), a UK non-profit, explained, "The CfD scheme has removed uncertainty for renewable energy projects in the UK, dramatically lowering the initial financing costs for renewable energy businesses."

Offshore wind projects require massive upfront construction costs, so power producers raise funds from investors and then share profits from future electricity sales. If profitability is not secured, it is difficult to attract investors, which can slow project progress. The CfD helps resolve this funding bottleneck by providing government-backed revenue stability, thereby accelerating project timelines.

When project uncertainty is reduced, capital costs can be lowered, which ultimately reduces the levelized cost of energy (LCOE) for offshore wind. From 2014 to 2024, the LCOE for UK offshore wind fell by 61.9% over the past decade.

According to Carbon Brief, a UK climate and energy think tank, the LCOE for offshore wind in the 2022 auction was 48 pounds per MWh (about 89,000 won), making it nine times cheaper than gas-fired power (446 pounds). Although offshore wind construction costs have since risen by about 40% due to inflation, Carbon Brief notes that it is still cheaper than gas-fired generation.

To date, the UK has held six rounds of offshore wind CfD auctions. In the sixth round last year, 10 offshore wind projects totaling 5.3GW (including one 400MW floating project) were selected.

This year, attention is focused on the seventh auction scheduled for the summer. The outcome of this auction is critical to securing up to 50GW of offshore wind capacity by 2030. As of now, the total capacity of offshore wind projects that have either been completed or have confirmed construction plans in the UK stands at 30.7GW.

View of the Verbobank Offshore Wind Farm as seen from Liverpoolman, UK.

To ensure the success of this auction, the UK government has introduced a large-scale support program called the Clean Industry Bonus (CIB). Through this, offshore wind developers will receive initial funding of 27 million pounds per 1GW. The support budget has also been increased to 544 million pounds.

Another reason for the rapid progress of offshore wind in the UK is that, because the seabed is owned by the Crown, various permitting and approval processes can proceed quickly. In Korea, the passage of the Offshore Wind Special Act in the National Assembly last February has also established an institutional basis for the government to take the lead in site selection, community acceptance, and other permitting processes.

Experts point out that Korea should also expedite the introduction of the CfD scheme to expand offshore wind. Jang Dawool, CEO of Ocean Energy Pathway, said, "CfD can mitigate uncertainty related to inflation, making it a satisfactory solution for both power producers and the government."

Electricity Rate Hikes to Fund Grid Investments

Like Korea, the UK is struggling with grid shortages caused by the rapid expansion of renewables. A Liverpool city official said, "Although the problem is less severe than in other cities, we are still facing output constraints."

The UK government has decided to make large-scale investments in the power grid to ensure smooth supply of renewables. On July 1, the UK energy regulator Ofgem conditionally approved a 24 billion pound (about 44.74 trillion won) grid investment plan, which includes 8.9 billion dollars (about 12.1 trillion won) for high-voltage grid upgrades. This is the largest grid investment since the 1960s.

The costs for these investments will be covered by higher electricity bills for end consumers. By 2031, household electricity bills are expected to rise by 104 pounds, meaning an additional 24 pounds per year. Ofgem explained, "Investing in the grid can eliminate the need to operate expensive gas-fired power plants, resulting in savings of 30 dollars per household in electricity bills."