Just two decades ago, offshore wind was largely viewed as an expensive and experimental idea. Today, it’s a core part of the UK’s clean energy strategy and driving local economies around the country. This transformation didn’t happen overnight and was mainly driven by government support in the form of subsidies.
For 10 years from 2008 to 2018, significant funding was provided to help kickstart offshore wind projects and pave the way for a thriving industry. But did it work? Was it worth the investment? And what lessons can other countries learn from the UK’s approach?
Understanding the Subsidy Regimes
Government help was essential in de-risking offshore wind, encouraging investment, and driving down costs. Over the decade between 2008 and 2018, three major subsidy mechanisms were used, each with different impacts on project development and investor confidence.
The Renewables Obligation (RO) (2002–2017)
This was the UK’s first serious attempt to support renewables at scale. As part of this policy, it became a requirement for energy suppliers to source a part of their electricity from renewable sources, including offshore wind. To prove compliance with this requirement, suppliers, in turn, had to buy Renewable Obligation Certificates (ROCs) from wind farm operators.
By 2017, the level of financial support given to offshore wind projects under the RO was approximately £80-90 per megawatt-hour (MWh). This meant that, for every megawatt hour of electricity produced by offshore wind farms, developers were receiving subsidies of £80-90 to help make the projects financially practical.
Whilst this high level of financial backing helped many developers take on new large-scale projects, it was also costly to uphold, raising concerns over the long-term affordability of the scheme for taxpayers and consumers.
Contracts for Difference (CfD) (2014–present)
CfDs replaced the RO, bringing in a competitive auction system where developers bid for long-term price guarantees, called strike prices. The premise being that if market prices dropped below the strike price; the government covered the difference. If they rose, the developers then paid back the surplus.
Making developers bid for contracts in auctions forced them to provide lower costs while still keeping profitability and, by 2017, offshore wind projects were winning contracts at a reduced £57.50 per MWh, making wind energy cheaper than nuclear for the first time ever.
This auction-based model really changed the game and continues to be a benchmark for other countries looking to scale offshore wind.
Capital Grants and Demonstration Funds
Beyond offering revenue support, the government provided direct grants for R&D, helping companies upscale manufacturing and deploy larger, more efficient technologies.
For instance, government-backed funding helped ease the installation of larger, more efficient turbines, which returned significantly increased energy output per unit. These advancements further contributed to the reduced cost per megawatt hour, making offshore wind even more competitive in the global energy mix.
Without this funding, the industry would have struggled to innovate, and, by 2018, offshore wind was no longer seen as an expensive alternative but as a mainstream energy source with growing investor confidence.
What Did the Subsidies Achieve?
Government support didn’t just help towards getting wind farms built. It triggered wider economic and industrial impacts that transformed the UK’s renewable energy sector. The ultimate question however is – was this investment worth it?
Growth of Offshore Wind Projects
Between 2008 and 2018, the UK’s offshore wind capacity skyrocketed! In 2008, the total installed capacity was around 600 MW and by 2018, this had grown to 8 GW, with major projects like Hornsea, Dogger Bank, and Walney Extension coming online.
This rapid expansion of offshore wind was not without challenges. Early projects faced significant hurdles, including supply chain bottlenecks, high financing costs, and lengthy permitting processes. However, with government support these obstacles were overcome and the UK became the global leader in offshore wind capacity.
Supply Chain Development
Subsidies didn’t just help developers though; they also drove investment into local supply chains. New factories, ships, and skills training programs all emerged to support the growing industry.
This was no longer just about energy; it became a matter of industrial strategy. With fresh investments pouring into offshore wind, thousands of new jobs were created, and coastal economies were revitalised. Engineering firms also turned their attention to offshore wind, and the UK proved itself as a leading global exporter of offshore wind expertise.
It’s worth noting that not all of the money was spent in the UK. However, in a globalised world, creating the legion of British based SME businesses it has spawned and supported is a significant success. They are contributing tax revenue and creating opportunities that previously weren’t there, including exporting their skills and products into every new offshore wind market.
Cost Reductions and Global Influence
The most impressive achievement? Offshore wind became cheap.
The price of offshore wind dropped by over 50% between 2014 and 2018 making offshore wind a practical option for countries worldwide and inspiring the creation of subsidy schemes or tax incentives in the US, Taiwan, and Japan.
The successes of the UK market, and others in Europe, show that subsidies can drive down costs through economies of scale, progressive learning, and technological advancements.
What’s Next? Floating Offshore Wind and the Next Wave of Subsidies
As the UK continues to lead in offshore wind energy, the industry has been keen to expand into floating offshore wind projects. Whilst the innovations of floating technologies hold immense potential, they also present unique challenges, particularly in terms of financing and development of technical solutions.
As we’ve already noted, the success of fixed bottom offshore wind in the UK was significantly driven by government subsidies. In total, since 2008, the UK has spent approximately £16 billion on subsidies for fixed bottom offshore wind projects. This support has helped to set up a mature industry and reduce prices to £55 per MWh in 2024.
Applying Lessons to Floating Wind
Floating offshore wind, however, is at a much earlier stage in its development. While initial subsidies for floating projects have been on par with early fixed-bottom projects, far fewer floating projects have been developed. As of 2024 comparable figures look as follows:
Fixed Projects: 12 years and 22 projects with subsidies awarded – strike price for Hornsea 1 was ~£175 per MWh (adjusted for inflation).
Floating Projects: 9 years and just 3 projects awarded – strike price for Greenvolt in 2024 was £ £139.93 per MWh.
While these figures show subsidies are still available, they also highlight that floating offshore wind is not going to receive the same level of subsidies that fixed-bottom projects once did.
Strategic Investment
In recognition of the potential of floating wind, the UK government has already increased funding for emerging renewable technologies. In recent years, the budget for such initiatives was raised by £165 million to a total of £270 million, signalling a strong commitment to developing floating wind farms. But it’s clearly not enough to deliver significant number of new technologies in our industry – an investment 50x this size is more realistically needed to kickstart the sector meaningfully.
What would UK plc get for our money? By investing in floating wind technology, the UK would extend our offshore wind potential to deeper waters, gaining access to stronger and more consistent wind speeds. Furthermore, the development of new supply chains and the promotion of innovation in turbine platforms, mooring systems, and dynamic cabling would offer an export ready global opportunity. But its highly unlikely to be delivered without subsidies, and probably of the size of those already given to fixed bottom.
Navigating the Path Ahead
The UK’s offshore wind subsidies weren’t just an investment in renewable energy; they were an investment in an entire industry and wider economy. They kickstarted projects, created jobs, drove down costs, and put the UK at the forefront of the global clean energy transition.
Floating offshore wind could follow a similar trajectory – but the potential upcoming challenges are different. With limited synergies between fixed and floating wind supply chains, floating projects may require comparable subsidy levels to those that launched fixed-bottom offshore wind.
By committing to long-term financial support and creating an environment for innovation, the UK can lead the way in this next phase of renewable energy development. Not only helping us to meet the nation’s decarbonisation goals but also positioning us at the forefront of the global energy transition.
As with all parts of our regulated industry, it’s really up to the government to decide what they want. The market can take care of delivery and funding where it’s commercially viable to do so, but it is unrealistic to expect it to be a risk or cost free enterprise.
