University of Oxford modelling finds uncapped 2021 Round 4 lease-option auctions raise project costs so much some sites would be unviable under the £113/MWh AR8 cap, risking delays, withdrawals and prolonged gas use.
Round 4 uncapped option fees increase required strike prices to £123.6–£155.1/MWh in modelling scenarios, both above the AR8 £113/MWh administrative cap.
If the government raised strike prices to cover fees, consumer costs in 2035–2054 could rise by £36–72bn (modelled), equivalent to £326–659 per household.
Policy fixes suggested include returning to fixed or capped fees, capping conditional fees with strict use-it-or-lose-it terms, and speeding planning and consenting before LR6 in 2027.
# What happened
# Why the fees matter
# What the modelling shows
Round 4‑style fees on project economics. It estimated a project that could bid around £95–97/MWh without option fees would need a strike price 30–59% higher if carrying the Round 4 fees. Under two scenarios the study produced fee-inclusive required strike prices of:
Both estimates exceed the AR8 administrative cap of £113/MWh. The authors conclude that, unless the cap is raised, developers will either accept lower returns, delay projects, or withdraw sites rather than pass fees onto consumers through higher administrative strike prices.
# Real-world example
The study cites EnBW and BP's Morgan project (1.5GW) as an example. Morgan returned its seabed rights after failing to secure a CfD. The brief notes option fees were only one of several pressures on Morgan, but its reported £231m-per-year option fee created a substantial cost without contracted revenue.
# Consumer cost trade-offs
# Policy recommendations
The authors recommend government reconsider the seabed leasing model before the next licensing round (LR6) in 2027. Specific proposals include:
A Crown Estate spokesperson said the organisation helped build the UK offshore sector and that its leasing has evolved with the market. They described Round 4 as a competitive process reflective of conditions at the time and said Round 6 will have a commercial model designed for the next phase of growth. They also said an update on that model will be supplied before year end.
# Bottom line
Uncapped Round 4 option fees significantly increase the strike price projects need to be viable. With AR8's £113/MWh cap in place, the modelling suggests developers may absorb fees into lower returns, delay projects, or withdraw sites—outcomes that could slow offshore deployment and prolong reliance on gas generation unless leasing or strike price policies change.
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