Round 5 Insights: How do recent changes in the energy sector affect the Celtic Sea tender?

The countdown is about to start as the latest offshore wind leasing Round 5 progresses to its final stage, Invitation to Tender 2 (ITT-2). Developers who have advanced to this stage will compete in an auction to secure one of the three Project Development Areas (PDAs) designated for the construction of up to 4.5 GW of floating offshore wind projects (FLOW) in the Celtic Sea through the 2030s. Successful bidders will sign Agreements for Lease (AfLs) with The Crown Estate (TCE) this summer.

Round 5 was launched a year ago, yet during that time the UK energy sector has witnessed several seismic changes: the Clean Power 2030 Action Plan, connections reform, new strategic plans, changes to subsidy schemes and the emergence of new bodies. Below we explore how these developments will intersect with and influence the Celtic Sea tender. More detailed analysis will follow in the coming weeks, examining these and more changes in greater depth.

A new ambition – Clean Power 2030 Action Plan

The UK government's Clean Power 2030 Action Plan (CP30) aims to decarbonise the energy system by 2030. Offshore wind is the "backbone" to achieving this goal, with a target of deploying 43-50 GW by 2030. FLOW as an emerging technology will have a limited role to play in achieving the 2030 target and projects in the Celtic Sea are not expected to be operational by then. However, CP30 acknowledges the future importance of FLOW projects for post-2030 decarbonisation, encouraging investment and supply chain development. Further details are anticipated in the upcoming Industrial Strategy this spring.

Connections reform

We are approaching the conclusion of the connections reform. Applications to connect to the grid for existing and new projects will move from a "first come, first served" to a "first ready, first needed" approach, aligning the process with CP30 and the Strategic Spatial Energy Plan (see below). Projects 'ready' i.e., with secured land rights or advanced in planning consent and 'needed' i.e., deemed necessary under CP30, will form a new, much shorter connections queue. Ofgem has given its approval in principle, with the new process set to be rolled out later this year.

The new regime will apply to Round 5 projects. However, Round 5 is the first leasing round to have an agreed plan in place to connect the new floating offshore wind farms to the UK’s electricity grid before the tender concludes. The "Beyond 2030: Celtic Sea" report, published last August, proposes a connection design with designated connections for each of the PDAs. The National Energy System Operator (NESO) confirmed in August 2024 that 4.5 GW were ringfenced in the connections queue for Round 5 to ensure an efficient progression of the connection process once TCE awards the AfLs.

The report is a follow-up exercise of the Holistic Network Design (HND) – the strategic design to connect wind farms to the onshore network in a cost-effective and coordinated way – which has informed CP30. Although Round 5 projects are not needed by 2030, some may be required by 2035.

Strategic plans

The infrastructure relevant to Round 5 will be used to inform the upcoming Strategic Spatial Energy Plan (SSEP) and the Centralised Strategic Network Plan (CSNP):

• The Strategic Spatial Energy Plan (SSEP): The SSEP will create an integrated spatial optimisation plan for energy infrastructure³. The first iteration of the SSEP will be informed by CP30 and will identify what, where and by when large-scale electricity and hydrogen generation and storage is needed across Great Britain. The SSEP will not prescribe specific projects, but rather demonstrate specific locations where technologies can be developed. Round 5 projects and connection plans will be factored into the spatial offshore analysis for the SSEP.
• Centralised Strategic Network Plan (CSNP) and transitional CSNP 2 (tCSNP2): The CSNP will build on the findings of the SSEP to recommend the best transmission connection options to implement the SSEP. Until the CSNP is ready in 2027, intermediate, transitional CSNPs recommend offshore and onshore network upgrades to facilitate the connection of offshore wind projects. Recommendations for the Celtic Sea network design will be incorporated into the updated version of the second tCSNP2, which will include network enhancements extending beyond 2030.

Contracts for Difference

Once Round 5 projects sign their AfLs this summer, they can bid for financial support through the Contracts for Difference (CfD) regime. The regime is currently undergoing significant changes with more expected once the electricity market reform (Review of Electricity Market Arrangements – REMA) concludes. Adjustments are anticipated by Allocation Round 7 (AR7) and beyond, with several benefits for Celtic Sea projects.

• Clean Industry Bonus (CIB): Previously known as the Sustainable Industry Reward, this incentive within the CfD regime offers additional financial support to offshore wind developers who invest in sustainable supply chains including low-carbon manufacturing, local content, economic growth and job creation in industrial communities. CIB is available for Allocation Rounds 7 through 9.

Round 5 project developers will be well-positioned to bid for CIB support . Port integration and social value plans were new for the Celtic Sea tender. They were submitted during the second stage of Round 5, Invitation To Tender 1 (ITT1) and their implementation will be monitored through the AfLs.

In addition to CIB, Celtic Sea project developers can also benefit from TCE's Supply Chain Accelerator Fund. The fund awarded nearly £5 million in funding last December to help to de-risk Round 5 supply chains.

• Allocation Round 7 and onwards: A significant change in CfDs from AR7, effective this January, allows Floating Offshore Wind (FLOW) projects to construct in up to three phases. Each phase can have its own separate contract, with a maximum of three contracts per project. The UK government is currently amending CfD contract templates to reflect these changes. The changes enable mitigation of investment risks and allows greater flexibility to bidders on consenting, construction, and funding matters.

New bodies

Since the launch of Round 5, three new bodies have emerged in the UK energy sector that will influence the development of the Celtic Sea projects:

• NESO: The new independent system operator and planner will undertake several actions relevant to Round 5. For instance, NESO is the delivery body for CfDs, while successful bidders will enter into connections agreements with NESO.
• Great British Energy (GBE): The publicly owned company will facilitate the delivery of clean energy projects, including offshore wind, through a partnership with TCE. Combined with the new investment and borrowing powers of TCE, GBE is expected to support Round 5 projects by mobilising investment.
• National Wealth Fund (NWF): Formerly known as the UK Infrastructure Bank, NWF now operates under a broader mandate. Its objective is to catalyse investment in clean energy and support the implementation of the new industrial strategy. With £5.8 billion earmarked for investment across five key sectors, including Celtic Sea ports, NWF is set to create robust opportunities for building resilient supply chains for Round 5.

Looking ahead

As the UK continues to advance its commitment to become a Clean Energy Superpower and achieve Net Zero by 2050, the recent developments outlined above represent significant steps for Round 5 projects towards reducing investment risks, accelerating the delivery of those projects and ensuring that the UK's energy infrastructure becomes more adaptable and robust.

With further changes on the horizon to streamline the consenting process including through the Planning and Infrastructure Bill 2025 and measures to enable strategic compensation for the adverse impacts of offshore wind projects in the marine environment, collectively these reforms support and benefit Round 5 projects and the efforts to commercialise FLOW technologies.

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