This policy brief examines how changes to seabed leasing by The Crown Estate (TCE) affect offshore wind financing costs, and may impact project delivery, bills and the UK energy transition.
Currently, developers must secure a seabed lease from TCE, pay an annual option fee, and bid for a Contract for Difference (CfD) guaranteeing a ‘strike price’ for electricity generated. For Leasing Round 4 (LR4, 2021), TCE moved from fixed fees to an uncapped auction, significantly increasing fees. Fees are paid years before any revenue, so are funded by equity not debt. Equity costs more, and paying it early compounds costs. Our modelling suggests a project able to bid for a CfD at ~£95–97/MWh with no option fees would need a strike price 30–59% higher to earn the same return with LR4-style fees. If such prices were struck for all new projects they would equate to £36–72bn in consumer costs during 2035–2054, equivalent to £326–659 per household. LR4-style fees imply a seabed cost of around £31/MWh, six to nine times what onshore wind developers typically pay landowners. In 2024/25, TCE received £1,073m in LR4 option fees, while the NSTA collected £2.9m in licence fees/charges from the oil and gas sector. Government has set the max bid for fixed-bottom offshore wind in the next CfD round (AR8) at £113/MWh. Projects with LR4-style fees may not be viable with this cap. Developers may delay or withdraw (as with Morgan, a 1.5 GW project). All outcomes slow deployment and prolong reliance on gas generation.
Government should reconsider seabed leasing before LR6 in 2027. Reverting to fixed or capped fees needs no new legislation, just action by the Chancellor. Any conditional fees should be capped and paired with strict “use it or lose it” terms. Faster planning and consenting would also reduce compounding costs.
Authors: Nadia Schroeder, Ely Sandler, Jamie Arnell, Nick Civetta, Cameron Hepburn, Richard Howard, Steve Smith.
