Offshore wind is navigating turbulent waters.As projects stall and investor confidence wanes,it’s becoming clear that the sector’s future depends not just on engineering breakthroughs or climate ambition,but on clear investment catalysts and long-term policy planning.This article argues that certainty–both in long-term policy planning and revenue mechanisms–is now the defining currency of offshore wind investment.It also challenges the continued reliance on the Levelized Cost of Energy(LCOE),a metric increasingly unfit to capture the full complexity of energy systems,and calls for a more strategic,context-aware approach to energy decision-making.
Offshore Wind on the Brink:Is the Contracts for Differences(CfDs)Model Europe’s Last Lifeline?
In recent months,several offshore wind projects have been withdrawn across the globe,with the latest setback coming from Germany,where a 2.5 GW offshore wind auction closed without a single bidder.Not even Samuel L.Jackson’s collateral(and expletive-filled)promotion of wind farms is enough to meet investors’confidence over the Bundestag’s terrains.Rather,offshore wind is ultimately dependent on outlining a reliable policy framework coupled with the appropriate incentives to attract private investment.
Last year,Denmark cancelled 3 GW of offshore wind as the no-subsidy model was no longer working,according to Lars Aagard,Minister for Climate,Energy and Utilities.Germany now seems to be heading down a similar path,facing the same structural challenges that undermined its northern neighbor’s offshore ambitions.Unlike in Poland,the Netherlands,or the UK,neither Denmark nor Germany included any form of support or revenue stabilization in their failed tenders.This clearly signals private investors are not happy with the current risk share offshore wind is offering.
Across the North Sea,both Denmark and Germany could take cues from the UK’s evolving strategy to reconcile its net-zero ambitions with the risk profiles of offshore wind developers.The Department for Energy Security&Net Zero has steadily increased administrative strike prices for CfDs in recent Allocation Rounds(ARs).For fixed-bottom offshore wind,the strike price rose from£53/MWh in AR5(December 2022)–when offshore wind developers showed no interest due to low bid prices–to£64/MWh in AR6(November 2023)–when the now-discontinued 2.4 GW offshore wind Hornsea 4 was awarded and up to the£66/MWh strike price in the recently published AR7(July 2025).(Note that all strike prices are reflected in 2012 prices.In 2024 prices,fixed-bottom offshore are£102/MWh and£113/MWh,for AR 6 and AR 7,respectively.)
Floating offshore strike prices saw an even sharper increase from£116/MWh(AR5),then to£176/MWh(AR6),and up to the recent£194/MWh in AR7.(Note all strike prices are reflected in 2012 prices.In 2024 prices,the floating offshore strike prices are£245/MWh and£271/MWh,respectively.)This new round not only boosts strike prices,but also lengthens CfDs terms to 20 years,and lowers the barrier for fixed-bottom developers to participate.
The UK may be charting a viable path forward through its evolving CfD framework.But whether it can truly restore investor confidence in offshore wind remains to be seen.However,offshore wind associations back CfD contracts alongside long-term electricity supply contracts.Revitalizing the sector demands more than just operational efficiency.It requires robust contractual frameworks coupled with long-term policy planning–especially in a turbulent landscape where policy volatility has already shaken giants likeØrsted,whose shares fell 30%on 11 August 2025 following policy shifts under the Trump administration.
Whether the UK’s CfD-led approach can weather the storm and serve as a blueprint for Europe remains to be seen.But one thing is clear:without fair revenue mechanisms and stable policy frameworks,offshore wind will struggle to stay afloat.
From Simplicity to Strategy:Upgrading the Metrics That Shape Energy Policy
The Levelized Cost of Energy(LCOE)has long been the go-to metric for comparing energy sources–but its simplicity masks serious flaws.In a world of volatile markets and complex societal trade-offs,relying on LCOE alone risks making energy policy dangerously one-dimensional.
The LCOE allows measuring the average cost of electricity generation over a project’s lifetime,enabling direct comparison across different sources of production.However,the LCOE omits wider implications of a specific electricity generation.One of its key shortcomings is its inability to account for broader infrastructure trade-offs–such as land use,public health impacts,and local economic benefits.Decarbonizing our grids is a flagship commitment for most governments around the world.However,implementing policies relying on the LCOE risk underestimates the benefits of renewable energy.
Additionally,the LCOE fails to reflect the volatility and uncertainty of construction costs,which are heavily influenced by supply chain dynamics.In today’s volatile environment,these blind spots are more consequential than ever.Wind turbines are predominantly made of steel(66%-79%),and as pointed out byØrsted CEO Rasmus Errboe,the cost of wind projects will have a meaningful impact due to tariffs on aluminum and steel.
Even some experts point out that LCOE is inadequate when making decisions at a country level.Unfortunately,this metric often permeates policy planning and governance,which poses several limitations.Despite its limitations,this metric is frequently used for policymaking.
On the other hand,considering external factors in the decision-making metrics certainly can work against the offshore advocates as well,as intermittency and additional transmission costs are factors that can complicate the case for offshore wind when alternative metrics are applied.These limitations become especially apparent when evaluating technologies through the lens of the“energy trilemma”,which demands reliability,affordability,and sustainability.LCOE primarily addresses affordability,leaving critical dimensions underexplored.To navigate this complexity,energy decision-making must evolve beyond LCOE and embrace more holistic,context-sensitive tools that reflect the real-world trade-offs of the energy transition.
Alternative metrics have emerged to address the limitations of LCOE,including the Value-Adjusted LCOE(VALCOE)and the Levelized Full System Costs of Electricity(LFSCOE).VALCOE incorporates information on both costs and the value provided to the system.LFSCOE,on the other hand,calculates the cost of supplying electricity solely through a given generation technology–plus storage–within a hypothetical market.While no single metric can fully capture the complexities,trade-offs,and wider externalities of energy systems–including climate,governance,societal impacts,or grid connectivity issues–emerging alternatives reflect a growing recognition that energy policy demands a broader,more strategic,and context-specific approach beyond LCOE.
For years,LCOE has been treated as the holy grail of energy economics–a single,sleek number used to compare technologies,shape policy,and justify investment.But that number is starting to crack.LCOE may tell us how much a megawatt-hour costs on paper,but it says nothing about the real-world risks,trade-offs,or societal value of a project.It does not capture the tariffs that shake supply chains,the land use that reshapes communities,and the long-term resilience that net-zero demands.In short,LCOE is a useful tool–but a dangerously incomplete one.And continuing to rely on it as the primary compass for energy policy risks steering us straight into a storm.
Conclusion:Certainty Is the Cornerstone of Offshore Wind’s Future
Offshore wind is at a critical juncture.The no-bid auctions andØrsted’s market plunge underscore a deeper truth:without legislative clarity and stability of revenue mechanisms,climate ambition alone won’t drive investment.The UK’s approach to CfD frameworks offers a promising foundation,but its success depends on being paired with long-term,strategic policy planning.Policymakers must move beyond narrow cost metrics like the Levelized Cost of Energy(LCOE),which often obscure broader societal benefits and fail to capture the full complexity of infrastructure trade-offs.
If offshore wind is to thrive,certainty must become its currency–both in boardrooms and in parliaments.Offshore wind doesn’t just need climate pledges;it needs a legislative backbone and a smarter approach to risk allocation,where fair risk sharing between public and private sectors becomes the norm,not the exception.
