The Queen’s property managers will this week set out terms for the world’s biggest offshore wind auction in a decade.

Industry experts expect the complex bidding process to raise record sums, which could increase energy bills and hand a windfall to the crown – potentially generating hundreds of millions for the Queen.

The Crown Estate, which manages the monarch’s property portfolio, holds exclusive rights to lease the seabed around the British Isles for wind and wave power. Its profits go to the Treasury, which then sends 25% back to the royal household in the form of the sovereign grant.

Quick guide How the Queen owns the seabed Show Hide The Queen’s ownership of the British coastline is an ancient right, but her authority to collect royalties from offshore wind and wave power is much more recent. The crown’s full exploitation rights were granted by parliament in 2004. Until the 1960s there was no formalised legislation declaring Crown ownership below the low-water mark. Until then, sovereignty was by convention and common law. In the eighteenth century, a three mile limit was adopted by most coastal states. There were exceptions, like Soviet Russia, which claimed 12 nautical miles. In the twentieth century, this wider limit came into use across the world, including the UK, and it remains in place today. The Queen’s marine domain stretches much further. It extends to the continental shelf, a zone up to 200m deep around the British Isles. To the east, the UK limit reaches halfway to the Netherlands and Belgium. This is a relatively recent development. Until the late 1950s, government lawyers were wary of extending sovereignty, for fear this might draw attention to the fact that there was actually no formal legislation enshrining crown ownership below the low water mark. A decade after her coronation, the issue was being raised by the monarch herself. Following an audience with Queen Elizabeth in 1962, the Earl of Perth, crown commissioner, reported that “she had seen something about the Crown Estate taking over rights on land under the sea”. The discovery of North Sea oil and gas was a catalyst, with drilling companies demanding clarity of ownership. In 1964, the Continental Shelf Act set the much wider boundary that remains in place today. The ownership of oil and gas on land and at sea rests with the crown, but since 1934 the job of exploiting it, by setting royalties and assigning drilling rights, has belonged with government. Wind power is different. From the first round in 2000, the leasing of wind farm plots was managed by the Crown Estate. Even then, demand was lively. The auction generated plans for 20 farms. All were confined to the 12 mile limit, because ministers felt that the UK could not use the 1964 act to permit big structures like turbines far out at sea without new legislation. More space was needed if this green energy source was to grow. So in 2002, government lawyers suggested using a UN convention to create an "exclusive economic zone" for wind and wave power within the continental shelf boundary. A green paper asked for views on “the most appropriate body” in which to vest management of this new zone. The question was settled by the 2004 Energy Act; exploitation rights would remain with the crown.

Criticised as a cash grab by some energy companies, the auction has already prompted calls for a review of whether the Queen should have the right to claim any revenues from offshore wind.

“If this source of value is going to increase fourfold, let’s make sure that value stays with the public rather than being spent on redoing the royal palace,” said Molly Scott Cato, the finance spokesperson for the Green party.

The sovereign grant was increased two years ago, from its previous level of 15%, in order to pay for extensive renovations at Buckingham Palace. It is to stay at 25% for a 10-year period, meaning the royal household should benefit directly from the money raised from the new leases.

Forecasts predict that offshore wind will be the UK’s fastest growing source of electricity in the decades to come.

The Queen’s seabeds generate 8% of the country’s electricity generation, but that could increase to a third by 2030 under government targets.

A more ambitious target of almost 80% from offshore wind by 2050 has been proposed by the Committee on Climate Change.

The cost of building turbines has plummeted, and pension funds, oil and infrastructure multinationals are now jostling for a share of the market.

The Crown Estate charges royalties equal to 2% of revenues for use of its seabeds, and collected £41m from existing leases last year. With many more plots already leased and under construction, these amounts will balloon.

The Crown Estate does not make its forecasts public. However, if the government’s 2030 target is met, the Queen could be collecting more than £100m a year within a decade.

Hornsea One, the largest planned offshore facility in the world, will be a large contributor to crown coffers. When it comes fully onstream in 2021, at a cost of £500m a year to electricity bill payers, the crown will receive £10m a year.

Offshore wind is paid for as a percentage of household bills. At present, 3p in every pound of a dual-fuel energy bill goes to turbine operators, on top of the money they earn from the wholesale electricity market. The crown then takes 2% of operator’s total revenues in royalties.

This year’s sale, the fourth held by the crown, marks a step change in how the royal seabeds are monetised. For the first time, renewable energy companies will be asked to submit an upfront payment to win a licence.

Five UK concessions are being auctioned: Dogger Bank, Southern North Sea, East Anglia, North Wales and Irish Sea. Between them, they represent 7 gigawatts of capacity. Each lease will run for 60 years.

After a selection process to identify the best proposals, shortlisted projects will be invited to make bids. The winners will be those offering the highest upfront payment.

Wrangles with bidders over the terms have already delayed the tender, which was originally due to take place this spring. Final details will be revealed in a presentation to industry on Thursday.

The draft format, which is likely to be tweaked, is for an “option fee” that only reduces once the wind farms are up and running. This would be on top of the annual royalty. Winning bids would also have to make a payment equal to 10% of the option fee every year in “rent” while the facility is being built.

Renewable energy developers have warned that the lack of transparency could lead to a “runaway” auction, which would ultimately raise costs of energy bills.

One industry source said the new option payments would be factored into the overall costs of the project. This would be passed on to bill payers via the annual payment the developers of renewables receive for supplying the grid. These payments are determined by a separate subsidy auction, organised by the government. Because the option fee would inflate the subsidy, it would also lead to more money being collected under the crown’s 2% royalty charge.

“It’s all sealed envelopes - and risks overcharging customers,” the source said. Energy companies were employing “sophisticated game-theory analysts” to determine how to bid against their rivals, he said.

“But at the end of the day, if you have a high option fee then you have a higher rent. In the past the Crown Estate applied a pretty light touch while the projects were being built – this is several magnitudes different,” he added.

Barnaby Wharton of the trade association RenewableUK said: “It’s very important that when the Crown Estate comes forward with its final proposals the market should be transparent to ensure that consumers get best value for money.”

The auction mimics a similar system used in the US offshore wind market. The recent US sale, which featured bids from Shell and Norwegian rival Equinor, raised a record $99m per gigawatt of generating capacity. If the UK fetches similar prices, the crown could collect as much as £560m in upfront payments. That figure is more than the total annual revenues for the Crown Estate, which rose to £477m last year.

A spokesperson for the Crown Estate said the UK auction would operate differently to the US one and that it was “not possible to compare like for like”.

Most of the Queen’s income is from property, but, under the current arrangements, the proportion of her wealth coming from energy is expected to grow.

“This transition is giving us a chance to create a more just economy,” said the Greens’ Scott Cato. “It’s a fantastic opportunity to rethink ownership in a way that challenges the inequality of society. When a new source of value appears it should belong to the public, it shouldn’t belong to the crown and the public just takes a piece of it. This is a good opportunity to raise that question.”

The royals are already facing criticism for spending £2.4m of taxpayers’ money on renovations at Frogmore Cottage, the Duke and Duchess of Sussex’s official residence.

The Crown Estate was a good custodian because it could take a long-term view, and balance the needs of government with the energy sector, environmental groups and other users of the sea like fishing fleets, said Huub den Rooijen, director of energy minerals and infrastructure.

“The rights have been vested in us,” he said. “The proceeds of the Crown Estate go in their entirety to the Treasury. It is then a decision for government and parliament as to how those funds are distributed.”

Den Rooijen said the auction design was appropriate for the “large and growing pool of capable developers” now operating in offshore wind, and that it would take into account extensive consultation with industry.

“Our proposed tender design … would assess the technical capability of potential bidders and their proposed projects, before using option fee as a means of determining project award. This approach will help to ensure that capable bidders and the strongest possible projects come forward for new leasing, within a process that is objective, fair and transparent.”