More good news from the UK this month as the Government announced a new package of £265m to support green energy projects. The money will be channeled via the Contracts for Difference auction series, an incentive scheme launched just under a decade ago.
How does it work?
The CfD scheme was rolled out as part of the ambitious Energy Act back in 2013 and supports the development of most renewable technologies (although notably, biomass has been excluded from the latest round).
CfDs incentivize investment in renewable energy by providing high-cost developments with direct protection from volatile wholesale prices, and they protect consumers from paying increased support costs when electricity prices are high.
There have been 3 auctions, or allocation rounds, to date, which have seen a range of different renewable technologies competing directly against each other for a contract.
Successful developers are paid a flat rate for the electricity they produce over a 15-year period – the difference between the ‘strike price’ (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the ‘reference price’ (a measure of the average market price for electricity in the GB market.
What’s the latest?
The next round is scheduled to open in December and submissions are invited from across the renewable energy spectrum.
The lion’s share of budget allocation (a whopping £200m) has been earmarked specifically for fixed-bottom offshore wind, demonstrating the current focus of the Government, but the rest is a free-for-all, with applications welcomed from hydro, tidal, solar PV, and onshore wind projects.
The inclusion of the latter became a cause for celebration in early 2020, as Prime Minister Boris Johnson announced renewed support for onshore turbines – a technology that had been shunned from previous CfD rounds.
The incorporation of this technology within the next auction has been heralded as a positive development by those within the renewables industry, but some warn that the support needs to be more generous.
Scottish Renewables chief executive Claire Mack said that “This auction comes at a crucial time for the UK’s climate leadership and I’m very pleased to see that greater renewable capacity will be unlocked by what is being set out today, particularly recognizing Scotland’s offshore expertise and ambition.
“While we are pleased that a balanced range of technologies will be supported, we are concerned that as little as 1.5GW of onshore wind could be secured, which would fall far short of what is needed to meet net-zero goals.”
Ruth Chapman, MD at renewables specialist Dulas agreed, stating that “seeing onshore back on the menu is a great step forwards for the Government. Just this week, we’ve seen a report published by Xodus demonstrating the international demand for British onshore wind expertise. It’s a major core industry for us and should be recognized and supported as such.”
“For those in the industry, this action is an affirmative step that gives us confidence that things are traveling in the right direction, but it would be better to see a substantial chunk of money ring-fenced for onshore in future rounds.”
RenewableUK chief executive Dan McGrail said that the “announcement will encourage even greater investment in renewables and is a huge boost for the UK’s green recovery.”
“We could see investment of over £20bn on the back of the next clean power auction, which will boost jobs and the UK supply chain, and cut costs for consumers in the transition to net-zero.
“The sector had called on government to increase the ambition for new renewable energy capacity at the upcoming auction and that is reflected in the announcement.”
“In this round we want to see just how low the price of new solar and onshore wind has fallen in the past five years, and make sure that the auction does the heavy lifting to take us towards our 2030 target of 30GW offshore wind.”
On course for a strong 2022?
The next CfD round is substantial enough to make a big industry impact, but there are rumors that the announced support levels could actually be increased at the last minute, offering even more support. Finalized sums will be outlined in December 2021.
What is certain is that BEIS is aiming to double the amount of power that was procured in the last CfD round two years ago.
The CfD auctions are just one component of the UK’s Ten Point Plan towards net zero, so seeing such big investment in this area is indicative of a wider commitment towards lowering national carbon emissions. It’s also anticipated that we’ll see more UK-centric announcements at COP26 in November.
So could 2022 be shaping up to be a record-breaking year? All signs and signals certainly point that way. Watch this space.