The Department for Energy Security and Net Zero (DESNZ) has released its response to a major consultation on the future of the Contracts for Difference (CfD) scheme.
In January 2024, DESNZ launched the consultation, asking industry stakeholders to comment on several proposals for the next CfD allocation round auction, AR7, which is set to take place in autumn 2025. Respondents were asked for their views on proposals for repowering contracts in the auction round, improved coordination of offshore transmission infrastructure, innovation in floating offshore wind, and updated finance to adapt to inflation risks.
Acknowledging that many renewable energy assets may begin to reach the end of their operational lifespan within the next five years, the response document has stated that the current criteria that repowered assets funded through the scheme must maintain their current level of capacity will be scrapped for AR7, as maintaining capacity levels in ageing assets may be “difficult to deliver effectively in time for the next allocation round without unintended consequences”.
The response also states an intention to extend its phasing policy, allowing projects to be built in multiple stages under the scheme, to the floating offshore wind (FLOW) sector, noting that the government “anticipate[s] further rapid expansion of the FLOW sector throughout the 2030s” for the next allocation round – a prediction supported by a recent report ranking the UK second globally for FLOW projects. Initially, the same phasing rules applied to fixed-bottom offshore wind projects will be applied to FLOW projects funded in phases through the CfD, including the 1.5GW cap for phased projects.
The report notes that it will not take on board proposals to index strike prices to the Producer Price Index (PPI) in order to mitigate investor concerns around inflation for project development, noting that such a move “would be an unsuitable alternative[…] that would increase, and not reduce, risk”.
Additionally, DESNZ states that it intends to further examine the role in which several other areas included in the consultation, including hybrid metering, and the role of interconnectors and other offshore infrastructure, play in the CfD system, noting that changes in these areas will not apply for AR7, but could be implemented in later allocation rounds.
Commenting on the proposals, RenewableUK’s head of strategic communications Nathan Bennett said: “We welcome the reforms to the CfD auctions which secure investment in new clean energy projects outlined by government. There are proposals here, which will start from next year onwards, which are undoubtedly in the interest of billpayers and energy security, including enabling repowered onshore wind projects to bid in to future auctions.
“The Government’s decision to extend the policy of phased CfDs for floating wind projects is also a positive move, as it will provide greater flexibility for developers to develop these projects at a pace that maximises their cost-competitiveness. However, we also need to see reforms which will bring forward the next round of test and development projects as soon as possible. These projects should be used to encourage the development of UK supply chains in floating wind, enabling us to scale up and deliver floating wind faster in the coming years.”