Investigating the Importance of UK Government Support for Offshore Wind: The Impact of Higher CfD Strike Prices on Developers’ Share Returns

Abstract

This paper uses stock market reactions to the Contracts for Difference Allocation Round 6 (CfD AR6) offshore wind strike price announcement to investigate the recent importance, or lack thereof, of the UK’s CfD scheme for offshore wind. Specifically, it takes the form of an event study, estimating the impact of the government’s AR6 offshore wind strike price announcement on offshore wind developers’ share prices. This is important, as any increase in share prices attributable to the AR6 strike price announcement should indicate the CfD scheme’s present-day relevance and ability to incentivise offshore wind development. If the CfD programme is instead redundant, then the AR6 strike price announcement should not have significantly affected developers’ share prices. Ultimately, this paper uncovered evidence supporting the continued relevance of the CfD scheme. While it appears that most offshore wind developers’ share prices did not significantly increase immediately after the government’s formal AR6 strikeprice announcement, there is evidence that investors reacted to leaked information about the offshore wind AR6 strike price in the week prior to the government’s announcement. Many of the sample firms experienced statistically significant positive abnormal returns following the first identifiable AR6 strike price information leak, and positive abnormal returns were particularly significant when aggregated across the sample and over the time period from the first instance of leakage to the government’s formal announcement. These results suggest that the CfD scheme increases the value of offshore wind developments today and indicate the scheme’s present-day relevance and ability to incentivise development.