The government's latest renewable energy auction (AR7) secured a record 8.4GW of new offshore wind capacity. Social media claims that this will "push up energy bills" are spreading fast but they're based on misunderstandings of how the system works.
This explainer breaks down the facts, the numbers, and the mechanics behind the Contracts for Difference (CfD) scheme.
🔍 Key Facts
- AR7 does not raise current energy bills - projects won't generate for years
- Fixed bottom offshore wind at £90.91/MWh remains cheaper than gas generation
- Floating wind at £216.46/MWh is tiny capacity and experimental technology
- CfDs protect consumers by returning money when wholesale prices are high
- Gas, not wind, sets electricity prices through marginal pricing system
⚡ What the Auction Actually Delivered
The AR7 auction awarded contracts for:
- Fixed bottom offshore wind (the mature, large‑scale technology)
- Floating offshore wind (a newer, more expensive deep water technology)
- Other renewables such as solar and onshore wind
The headline figure 8.4GW refers to fixed bottom offshore wind. This is the cheap, established technology that already powers millions of UK homes.
📊 The Key Numbers People Are Mixing Up
Many online posts take the floating wind price and imply it applies to all offshore wind. It doesn't.
🌊 Fixed bottom Offshore Wind
- Strike price: £90.91/MWh
- Still far cheaper than new gas generation (around £108–£126/MWh, depending on fuel prices, carbon costs, and plant efficiency).
- This is the technology that will deliver the bulk of new capacity
- Mature, proven technology with established supply chains
- Represents the vast majority of the 8.4GW capacity
🔬 Floating Offshore Wind
- Strike price: £216.46/MWh
- Much higher because the technology is new, complex, and still scaling
- Represents a tiny fraction of total capacity
- Won't generate electricity until the 2030s
- Strategic investment in next-generation technology
🏠 Does This Raise Current Energy Bills?
Short Answer: No.
The auction does not increase today's household bills. Here's why:
a) CfDs Don't Affect Current Prices
Contracts for Difference only apply when the project starts generating, often years later. AR7 projects won't produce electricity until late this decade or the 2030s.
b) CfDs Are Designed to Lower Bills Over Time
When wholesale prices are high, generators pay money back to consumers. This has already returned billions during the gas price crisis.
c) The Comparison That Matters Is Wind vs Gas
Even with the 11% increase in strike prices this year, fixed bottom offshore wind is still cheaper than gas, which remains the main driver of UK energy bills.
🔄 How CfDs Actually Work and Why They Don't Raise Bills
This is the part most people never see, and it's where misinformation thrives.
a) CfDs Don't Use Taxpayer Money
They're funded through a levy on suppliers, not general taxation.
b) Suppliers Don't Pass CfD Costs Straight to Consumers
Suppliers buy electricity on the wholesale market. CfDs sit outside that market and act as a stabiliser:
📈 High Market Price Scenario
If the market price is higher than the strike price → Generators pay back the difference
This reduces costs for consumers
📉 Low Market Price Scenario
If the market price is lower than the strike price → Generators receive a top‑up
This provides revenue certainty for investment
c) AR7 Projects Won't Generate for Years
No electricity → no top ups → no impact on bills.
d) Gas, Not Wind, Sets the Price of Electricity
The UK still uses gas to meet marginal demand. That means:
- When gas is expensive → electricity is expensive
- When gas is cheap → electricity is cheap
Wind doesn't set the price, it displaces the expensive gas that does.
e) Offshore Wind Has Already Reduced Bills
During the gas crisis, CfD wind farms paid billions back to consumers because wholesale prices were far above their strike prices.
💰 CfD Consumer Benefits During Gas Crisis
- 2022: Wind farms returned over £500m to consumers
- 2023: Additional billions returned as gas prices remained elevated
- Mechanism: When wholesale prices exceeded CfD strike prices, generators paid the difference back
- Result: Bills were lower than they would have been without CfDs
🌊 Why Floating Wind Costs More and Why That's OK
Floating offshore wind is in the same phase solar was in the early 2000s:
- Early stage: Technology still being refined and optimised
- Capital intensive: High upfront costs due to limited supply chains
- Rapidly improving: Costs falling as deployment increases
- Expected to fall sharply: Same pattern seen with fixed-bottom wind and solar
The UK is investing early to build supply chains, ports, and expertise which is how we became a world leader in fixed bottom offshore wind.
Floating wind is a strategic industrial investment, not a driver of household bills.
The Technology Learning Curve
History shows that renewable technology costs fall dramatically with scale:
| Technology | Early Cost | Current Cost | Cost Reduction |
|---|---|---|---|
| Solar PV | £300+/MWh (2010) | £50-60/MWh (2025) | ~80% reduction |
| Fixed-bottom Offshore Wind | £150+/MWh (2015) | £90.91/MWh (2025) | ~40% reduction |
| Floating Wind (projected) | £216.46/MWh (2025) | £120-140/MWh (2035 est.) | ~35-45% expected |
🔄 What Happened to the Old Subsidy System and Why CfDs Are Cheaper
Before CfDs, the UK used the Renewables Obligation (RO) scheme. This system:
- Paid generators a fixed subsidy on top of the wholesale price
- Had no mechanism for paying money back to consumers
- Locked in higher costs for older wind and solar projects
- Was much more expensive than today's CfDs
The RO closed to new projects in 2017. Everything since then uses the CfD system instead.
RO vs CfD Comparison
| Feature | Renewables Obligation (RO) | Contracts for Difference (CfD) |
|---|---|---|
| Payment Method | Fixed subsidy on top of market price | Top up or payback to reach strike price |
| Consumer Protection | None always pay subsidy | Money returned when prices high |
| Duration | 20-25 years (project lifetime) | 15-20 years (then market pricing) |
| Cost Control | Limited prices set administratively | Competitive auctions drive costs down |
⏰ CfDs Don't Last Forever, Even in AR7
A crucial point missing from most online discussions:
AR7 CfDs Last 20 Years, Not 15 but They Still End
The government extended the contract length for this auction to 20 years to help developers manage higher financing and supply chain costs.
But the principle remains the same:
- After 20 years, the generator receives no top ups
- The strike price no longer applies
- The project sells electricity at market price
- Consumers no longer carry any support cost
This is fundamentally different from the RO system, where subsidies continued for the full life of the project.
📅 Contract Timeline Reality
- Years 0-5: Development and construction (no electricity, no costs)
- Years 5-25: CfD contract period (price support if needed)
- Years 25-50+: Free electricity at market prices (no support costs)
- Even floating wind's £216/MWh does NOT last for the life of the turbine
📱 Why Social Media Is Getting This Wrong
Most misinformation stems from four key misunderstandings:
1. Confusing Floating Wind Prices with Fixed bottom Prices
Posts show the £216/MWh floating wind price and imply it applies to all 8.4GW. In reality, the vast majority is fixed bottom wind at £90.91/MWh.
2. Assuming CfDs Set Today's Electricity Prices
CfDs only activate when projects generate electricity, years from now. Current bills are set by gas prices, not future renewable contracts.
3. Not Understanding That Gas, Not Renewables, Drives UK Bills
The marginal pricing system means gas plants set electricity prices. Renewables reduce the demand for expensive gas generation.
4. Not Realising CfDs Expire Unlike the Old RO Subsidies
Many assume support lasts forever. CfDs end after 15-20 years, after which projects provide unsubsidised electricity.
The result is a narrative that sounds intuitive but is technically false.
⚖️ The Bottom Line
The key facts about AR7 and energy bills:
✅ Reality Check
- The auction does not raise current energy bills
- Fixed bottom offshore wind remains cheaper than gas
- Floating wind is expensive because it's new but it's a tiny share of capacity
- CfDs protect consumers and reduce long term exposure to volatile fossil fuel markets
- AR7's 20 year contracts still end, after which projects become cheap, unsubsidised power
This auction strengthens the UK's energy security and accelerates the shift to cheaper, homegrown power.
The Bigger Picture
Beyond the immediate misinformation, AR7 represents:
- Energy independence: Less reliance on volatile fossil fuel imports
- Industrial leadership: Maintaining UK advantage in offshore wind technology
- Consumer protection: Long term price stability through fixed price contracts
- Climate action: Significant progress toward net zero emissions
- Economic benefits: Jobs and investment in UK supply chains
The choice is clear: invest in cheap, clean, domestic energy or remain dependent on expensive, volatile, imported fossil fuels. AR7 chooses the former, despite the social media noise suggesting otherwise.
🎯 The Evidence vs The Noise
Social media thrives on simple, emotionally compelling narratives. "New wind farm contracts raise your bills" is easy to understand and share, even when it's wrong.
The reality is that CfDs are complex financial instruments that provide consumer protection while supporting investment in cheaper energy is harder to explain in a tweet. But complexity doesn't make it less true.
Understanding how these systems actually work is crucial for informed debate about energy policy. The stakes are too high for policy decisions based on viral misinformation.