Proposals for more robust assessment of supply chain plans from developers seeking clean power contracts unveiled by government
The government is seeking to raise the bar on supply chain requirements for companies looking to develop wind, solar, and other renewables projects through the UK’s flagship clean power contract regime, in a bid to drive down costs and boost competitiveness.
Proposals to tweak the application process for the Contracts for Difference (CfD) auction scheme have been launched for consultation today by the government, with the aim of making the questioning and scoring of developers’ supply chain plans for potential projects more robust.
Such moves are sure to be watched with keen interest by the European Union, given reports that a potential post-Brexit trade battle with Brussels is looming over the government’s previously stated aim to boost UK-manufactured content in the supply chain of renewables projects that secure CfDs.
The proposals unveiled by the government today aim to enhance government scrutiny of developers’ supply chain plans, with assessors potentially taking in to consideration a range of different factors when deciding whether to allow applicants to take part in auctions.
The CfD scheme has been pivotal in driving down the cost of renewable energy projects, such as offshore wind farms, by offering 15-year contracts to developers through competitive auctions that provide a guaranteed price for the electricity they generate.
Results of the next CfD auction round – which is backed by £285m of funding – are due to be announced in spring or earlier summer this year, and the changes proposed today would potentially come into effect for the following auction in 2023, the government said.
At present, developers looking for CfDs for renewables projects with more than 300MW of generation capacity have to put forward a Supply Chain Plan (SCP) which is assessed through a questionnaire in the application process.
Should developers later fail to fulfil their SCP commitments – which could potentially cover energy use, raw materials, labour, and emissions – the Business Secretary has the power to terminate their CfD as a last resort.
But now the government is proposing to introduce an additional new interview process for developers looking to secure contracts for renewables projects with more than 300MW in capacity, bolstered by more rigorous questioning and a higher pass-mark for those that qualify.
The aim, it said, was to allow for “greater scrutiny of CfD applications” and ensure developers commit to a range of actions to increase the competitiveness of supply chains, drive down the cost of energy, and potentially reduce emissions in the process.
“The responses from the interview would then be used to update BEIS’ initial assessment,” the consultation documents state. “Applicants would have the opportunity to provide additional clarity and context to their commitments and to make amendments to their plans before a final mark was awarded, ensuring that there are no misunderstandings when it comes to the intentions of applicants.”
At present, applications must achieve a pass mark of at least 50 per cent through the assessment of their SCP in order to be eligible to secure a CfD, but proposals today would see that minimum pass mark rise to 60 per cent.
“As we increase our ambition to deliver on our net zero target, we need to ensure that the renewable electricity supply chain remains competitive, to keep cost down, and has the capacity to meet the rising demand for components and services,” the consultation documents states. “Plans that only just pass at the 50 per cent mark are unlikely to make sufficient progress against these objectives.”
Moreover, the government is seeking views on whether to expand CfD supply chain requirements to emerging renewable energy technologies that are expected to see significant growth and greater deployment as a result of the next contracts auction round, such as floating offshore wind projects.
The fourth CfD allocation round, which launched in December 2021, has ring-fenced £75m for several emerging technologies for the first time, including remote island wind, tidal stream, and floating offshore wind projects.
The proposals come as the government faces heightened scrutiny of its flagship renewable energy scheme from the EU, with recent reports suggesting Brussels is poised to lodge a complaint with the World Trade Organisation (WTO) over concerns elements of the CfD system risk unfairly favouring UK-based suppliers.
The looming dispute is understood to concern the supply chain questionnaire which developers have to fill in during the CfD application process – which the latest UK proposals today aim to strengthen.
The government has previously stated its ambition to increase UK-made content in offshore wind projects to 60 per cent by 2030 as part of the Offshore Wind Sector Deal, but it insists the application process for CfDs does not include any requirements for developers to use UK content.
In a statement provided to BusinessGreen last week, the government said it was “aware that the EU has concerns with the UK’s Contracts for Difference scheme and have previously engaged with them on this”.
“We wait to see what action they may take, but would contest any challenge the EU brought against the UK on this matter,” the government said. “CfD auctions are a vital part of our efforts to drive down the cost of renewable energy. The application process does not include a requirement for developers to use UK content, as alleged by the EU.”
It added: “The fourth CfD allocation round is expected to secure more renewable energy capacity than the previous three rounds and we fully expect it to continue uninterrupted regardless.”
It is not the first time a UK energy auction scheme has faced pushback from the Brussels, with the Capacity Market system having been temporarily suspended in 2018 while the EU investigated whether it broke State Aid rules, before giving it the green light to continue the following year.
BusinessGreen understands the government remains steadfast in its belief that the CfD scheme complies with all legal obligations.
Should the EU lodge a complaint, the dispute would likely take several years to reach resolution through the WTO, which even then does not have the power to halt the CfD process, BusinessGreen understands.
It is therefore unclear why the EU would seek to raise a dispute through the WTO, rather than directly with the UK under the terms of the Brexit deal, which is the basis of separate ongoing tensions over trade checks on the border between Northern Ireland and the rest of Britain.
In response to a request for comment on the reported EU-UK trade tensions, RenewableUK CEO Dan McGrail said the UK’s offshore wind sector provided major economic benefits for the UK and companies right around the world.
“Our world-leading offshore wind market is providing huge opportunities for firms across the UK and the EU, boosting their ability to compete in an increasingly global market,” he said. “This has been enabled by the UK’s target to quadruple our offshore wind capacity this decade, and by the certainty which Contracts for Difference provide for investors, developers and supply chain firms.
“As hard-pressed bill payers across Europe are being hit by rocketing international gas prices, now is the time to focus on collaborating to accelerate the global transition to low-cost clean energy.”