Developers of solar, tidal, and onshore, offshore, and floating wind projects are all eligible to bid for price support from record £285m Contracts for Difference pot
The latest round of the government’s hotly-anticipated flagship clean energy subsidy scheme opens for applications today, with a total of £285m up for grabs for a variety clean power technologies, as the government looks to secure a record 12GW of renewables capacity to help decarbonise the UK grid.
The fourth Contracts for Difference (CfD) auction round is set to be the largest to date, and is expected to deliver more renewable capacity than the previous three rounds combined – potentially providing enough clean power for eight million homes – thanks to continually plummeting technology costs, according to the Department for Business, Energy, and Industrial Strategy (BEIS).
Compared to the previous CfD round, the latest auction has been expanded to allow for a wider array of technologies, with offshore wind, onshore wind, solar, tidal, and floating offshore wind projects, among others, all eligible to bid for funding through the auction process.
The auction will deliver 15-year contracts between renewable power generators and the government’s Low Carbon Contracts Company (LCCC) that provide a guaranteed price for the power generated over the period, thereby providing greater revenue certainty to generators by reducing their exposure to volatile wholesale prices.
The competitive auctions through which contracts are awarded are widely regarded as having played a pivotal role in helping to drive down the cost of clean power and accelerating the rollout of renewables projects over the past decade, with the price per unit of offshore wind power having fallen around 65 per cent between the first allocation round in 2015 and the third in 2019.
The contracts also hold out the prospect of returning money to the government, as if wholesale power prices exceed the price agreed through the CfD then generators have to pay the difference back to the LCCC. Experts have predicted bids from onshore wind and solar developers in particular could undercut wholesale prices.
Business and Energy Secretary Kwasi Kwarteng said opening up the latest CfD auction round to more technologies would help deliver a more secure, resilient energy system as the UK pushes towards its 2050 net zero target.
“Our biggest ever renewables auction opening today will solidify the UK’s role as a world-leader in renewable electricity, while backing new, future-proof industries across the country to create new jobs,” he said. “By generating more renewable energy in the UK, we can ensure greater energy independence by moving away from volatile global fossil fuel prices, all while driving down the cost of new energy.”
From the total £285m budget for the latest CfD round, £200m is being made available specifically for offshore wind projects, with £10m set aside for established technologies such as solar and onshore wind. The remaining £75m, meanwhile, has been set aside for emerging technologies such as remote island onshore wind, tidal stream power, and floating offshore wind projects, with £20m ring-fenced specifically for tidal, marking the UK’s largest ever investment in the technology.
It means that more established technologies onshore wind and solar will be competing for CfD funding for the first time since 2015, with the government seeking to secure significant capacity from these technologies in order to help achieve UK climate targets at the lowest possible cost.
RenewableUK CEO Dan McGrail welcomed the launch of what he said looked set to be “a landmark auction securing the largest amount of new renewable energy capacity so far”, pointing to the “enormous appetite” among companies and investors to deliver UK clean power projects.
“More than 16GW of wind could be ready to compete and over 23GW of renewables overall,” he explained. “We could see investment of over £20bn in this round, creating thousands of jobs and cutting costs for energy consumers.”
“We need a range of renewable technologies to get us to net zero as fast as possible, so it’s great to see the development of innovative floating wind and tidal stream projects supported by ring-fenced funding, as we’ve been advocating,” he added. “This will enable us to ramp up the roll-out of these cutting-edge technologies, building up massive industrial opportunities for the future, including exports.”
The fourth CfD auction round officially opens for applications today and runs until 14 January, with the final results expected to be announced in spring or summer next year.
It came as energy regulator Ofgem separately today also opened up the bidding process for investment in new subsea electricity interconnector cables that carry clean power to and from the UK and abroad, in a bid to help decarbonise the grid and improve domestic energy security.
Ofgem said it planned to hold its third interconnector cable investment round next year, in a move designed to expand the UK’s existing network of seven operational subsea cables connecting to Ireland, France, Belgium, the Netherlands, and Norway.
Together, these cables provided almost seven per cent of the UK’s electricity last year, importing clean power when required by the grid, while also opening up the potential to export surplus power to neighbouring countries.
The UK government is aiming to more than double existing interconnector capacity by 2030 to support its target of quadrupling offshore wind capacity to 40GW by that date.
Ofgem said the upcoming investment round would therefore favour projects that would be completed within the current decade.
“Greater interconnection of energy across borders is vital to ensure resilience, affordability and sustainability in the future as we transform our energy system,” said Akshay Kaul, director of Networks at Ofgem. “Our next investment round for interconnectors will bring forward the investment we need, creating green jobs and unleashing the full potential of the UK’s world leading offshore wind industry, while also protecting customers by capping costs.”