Seabed leasing fees threaten UK energy security and bills – Oxford Smith School report

• In 2021 (Leasing Round 4), TCE moved from fixed fees to an uncapped auction, significantly increasing fees
• Modelling suggests projects would need an electricity ‘strike price’ 30–59% higher to earn the same return with LR4-style fees – which is not possible under current pricing caps
• The result is an immediate risk of delay or cancellation to the UK’s offshore wind development pipeline
• If such prices were to be applied to all new projects and passed on to end users, this could equate to £36–72bn in consumer costs during 2035–2054, equivalent to £326–659 per household.

Government should urgently review fees before the next leasing round in early 2027, say the authors.                                           

The policy brief was written by a team at the University of Oxford’s Smith School of Enterprise and the Environment, and Aurora Energy Research.                                                                        

“The growth of offshore wind is a UK success story that should deliver lower bills and energy security for a country that deeply needs both,” says Steve Smith, Associate Professor at the Oxford Smith School. “Unfortunately, the current fee structure is holding back these benefits.”

The authors say reform – such as reverting to fixed or capped leasing option fees – would not need new legislation, just action from the Chancellor. They also suggest that if any conditional fees are used, these should be capped and paired with strict ‘use it or lose it’ terms. The analysis further notes that faster planning and consenting is a well-established priority for offshore wind and would help reduce compounding costs for industry.

"This is a case of two arms of the state pulling against each other. One is trying to deliver affordable clean power at pace, the other is maximising revenue from the seabed those projects depend on. The cost of that tension is likely to land on both bill payers and the speed of the transition," says Nadia Schroeder, Head of Strategy and New Initiatives at the Oxford Smith School.

“We need to balance seabed revenue with affordable, secure and rapid clean energy deployment,” concludes report co-author Cameron Hepburn, Battcock Professor of Environmental Economics, Oxford Smith School. “Last year The Crown Estate received £875m in leasing round option fees and distributed around half to Government. This needlessly undermines the economic attractiveness of our clean energy. We hope this report leads to much-needed scrutiny and reform.”