Major win for UK renewables sector, as government confirms it will stage Contract for Difference auctions every year
The government has today promised to accelerate the roll out of low cost renewable projects by shifting the timetable for clean power contract auctions from once every two years to every year.
The next Contract for Difference (CfD) auction will now open in March 2023 and will be followed by a series of annual auctions, the Department for Business, Energy, and Industrial Strategy (BEIS) announced.
The CfD regime provides clean power projects with a guaranteed price for the energy they generate, delivering long term certainty that has helped attract investors to the sector and reduce the cost of capital for projects. A series of competitive auctions for securing contracts has been credited with slashing the cost of renewable power to a level where new projects routinely undercut wholesale gas power prices, delivering savings for billpayers.
Most notably, the cost of offshore wind power has fallen by around 65 per cent over the past decade and is widely tipped to fall further when the results of the current auction round are announced later this year.
“We are hitting the accelerator on domestic electricity production to boost energy security, attract private investment and create jobs in our industrial heartlands,” said Business Secretary Kwasi Kwarteng. “The more clean, cheap and secure power we generate at home, the less exposed we will be to expensive gas prices set by international markets.”
His comments were echoed by Energy Minister Greg Hands, who said more frequent CfD auctions would help the UK build on its position as a world leader in renewable energy development. “This will help provide cheaper energy to consumers, guaranteeing more of our energy is produced at home and reducing our dependence on fossil fuels,” he said.
The move follows calls from the renewables industry and green groups for the government to accelerate the timetable for CfD auctions, amidst warnings that a faster rate of project development is required over the coming decade if the UK is to meet its clean energy and carbon emission goals.
Campaigners have also argued that increasing the UK’s renewables capacity provides one of the best ways to reduce its exposure to volatile global gas markets in response to the current gas price crisis.
“Moving to annual CfD auctions is a major step forward which will significantly accelerate the speed of our nation’s transition to net zero,” said Dan McGrail, chief executive of trade body RenewableUK. “It’s good news for consumers too, as it means the UK will be reducing its vulnerability to volatile international gas prices and increasing the volumes of low cost renewable energy in our energy system. There’s a huge appetite among renewable energy developers to invest in building more projects, which will help to grow the UK supply chain at a faster rate. This will enable us to maximise the economic benefits which this sector offers to everyone, especially in parts of the country which urgently need levelling up.”
He added that the change was crucial to helping the sector meet the ambitious clean energy targets the government has set. “We need build up to 4GW of new offshore wind capacity every year to stay on track for net zero, which means quadrupling our current annual rate,” he said. “Similar increases in onshore wind, solar and other clean power sources are vital too, as well as ramping up the roll-out of innovative technologies like floating wind, green hydrogen and marine power.”
The government stressed that the new auctions would complement its recently announced funding package for new nuclear projects, which is attempting to deliver a series of new nuclear plants beyond the Hinkley Point project that is currently under construction. BEIS said that it was providing up to £1.7bn to enable a final investment decision on a large-scale nuclear project in this Parliament, working to pass a new Nuclear Energy (Financing) Bill, a providing a £210m grant to a Rolls-Royce-led consortium to develop a UK Small Modular Reactors design.
The moves come as the government faces growing calls from some of its backbenchers and Cabinet Ministers to ramp up domestic gas production, including through a revival of fracking projects, despite experts warning that increased UK gas production would have a negligible impact on wholesale prices and undermine the UK’s net zero goals.
The news also comes on the same day as trade body Scottish Renewables published its latest Supply Chain Impact Statement, detailing how the country’s renewables industry is delivering jobs and investment right across the economy. The third edition of the annual Supply Chain Impact Statement spotlights 32 firms working across Scotland’s renewable energy industry, which now employs 22,660 people.
It also highlights how the sector is delivering a wide and growing range of projects, including heating networks, a pioneering zero-emission hydrogen fuel cell train project, multiple low-carbon transport hubs, the UK’s largest community-owned hydro scheme, the world’s most powerful tidal turbine, ground-breaking floating offshore wind farms, specialist renewably-powered remote monitoring solutions and innovative artificial intelligence control systems.
“Renewable energy projects across Scotland deliver many benefits to our urban, rural and island communities, providing low-carbon heat, transport and electricity as well as creating employment opportunities for the people who live there,” said Claire Mack, chief executive of Scottish Renewables. “Both the onshore and offshore wind sectors, which provide so much of the economic benefit highlighted in this report, are pushing hard for huge growth, including from the 17 new offshore projects which came through the recent ScotWind Leasing round.
“That means the potential future pipeline of renewable energy projects in Scotland has never been stronger, and the time is now for both governments to work with industry to build on the successes highlighted in this statement by investing in innovation, infrastructure and technology to support supply chain development to make the most of these opportunities.”
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