The UK government has announced that the budget for this year’s Contracts for Difference (CfD) Allocation Round 6 (AR6) will be increased by over 50%, sending shockwaves across the energy industry.
The budget has been increased to £1.56 billion, an increase of £530 million from last year’s AR5 auction. Notably, the low strike price at the AR5 auction led to a disappointing result, with no bids for offshore wind projects being made.
The increase in financing follows calls from climate and energy think tank Ember, which warned that the UK had “three weeks to course correct” in order to meet 2030 offshore wind targets, and urged the government to increase the CfD budget for AR6 and AR7 auction rounds by at least 25%.
Research firm Cornwall Insight has calculated that the government’s 50% increase could support the addition of at least 1.2GW of new offshore wind capacity, compared to the original budget, meaning that a minimum of 4.3GW of offshore wind capacity could be expected to achieve contracts.
The news has generated broadly positive reactions across the clean energy industry. However, some caution this should not be seen as a quick fix to the UK’s clean energy capacity woes.
Hope for offshore wind
Many have expressed hope for the offshore wind auction, following the failure to secure bids in AR5.
Sam Hollister, head of economics, policy and investment at analytics firm LCP Delta, said: “It is positive to see the new government continuing to demonstrate its commitment to support the UK’s transition to a low carbon economy.” He added: “More than doubling the pot two budget sends a strong signal to emerging technologies, mainly floating offshore wind. With the recent approval of the UK’s largest floating offshore wind project, this move represents an important step towards the new 2030 targets for the new government.”
Jessica Hooper, director of RenewableUK Cymru said the organisation welcomed the budget uplift to £270 million for emerging technologies like floating offshore wind, and described this technology as “jewel in the crown we need to succeed in Wales”.
She added that an increased budget for emerging technologies represents an “opportunity to kickstart a burgeoning new industry that unlocks thousands of jobs and puts us at the helm of our own homegrown, clean power”.
Sun shines for the solar sector
The solar power sector has also expressed optimism for its future, following the news that the budget for established technologies such as ground-mounted solar power will increase by £65 million to reach £185 million. This news follows multiple success stories for the solar industry, including the expansion of the UK’s total installed capacity.
“This is further very welcome news for the solar sector, following yesterday’s consultation on planning rules and the approval of three large-scale solar farms only a week after the election,” said Chris Hewett, chief executive of Solar Energy UK. “While all depends on the results of the coming auction, the increased allocation should allow many more projects to go ahead, driving down carbon emissions and energy bills alike.”
Sarah Merrick, founder and CEO of Ripple Energy, said: “It’s great the government has taken the positive decision to increase the budget in the forthcoming CfD auction. This will mean more shovel-ready wind farms and solar parks will be built in the coming years, representing real action on climate change. The new government has definitely hit the ground running, with a laser focus on the delivery of new home-grown, low-cost power.”
Dan McGrail of RenewableUK also expressed confidence in the sector, noting that these boosts could encourage private investment in the UK. He said: “It’s great to see government choosing to unlock more investment in renewable energy projects. These new wind and solar farms will improve our energy security, drive economic growth, support thousands of new green jobs and ensure we continue to create a lowest cost electricity system for bill-payers.
“This builds on a series of positive announcements from the government which are increasing investor confidence in the UK, including ending the ban on onshore wind in England and approving new large-scale solar farms.”
Not a magic fix for the sector
However, some in the industry have cautioned that these budget increases are not a magic fix for ongoing UK energy concerns.
Sam Richards, CEO of the pro-growth campaign group Britain Remade, noted that the planning system needs reform alongside these budget increases in order to succeed, calling the planning system “the biggest roadblock to building the new sources of clean energy”.
He added: “It’s simply madness that it takes up to 13 years to build an offshore wind farm, despite construction of the actual turbines only taking two. Work still needs to be done to streamline environmental impact assessments and tackle baseless judicial reviews.”
Hooper also noted that: “in future allocation rounds, we need to guard against unwanted regional competition and ensure that as many new offshore windfarms as possible are built, including the test and demonstration sites in the Celtic Sea, to encourage innovation and drive cost reduction.”
Jess Ralston, head of energy at the Energy & Climate Intelligence Unit (ECIU), said that many are overoptimistic about the role of CfDs in the energy system. She stated: “There’s misunderstanding over what the so-called ‘budget’ for CfDs actually is. It’s based on unrealistic Treasury electricity price projections that are lower than experts suggest.
She added: “The next auction is likely to secure enough offshore wind to save £30-40 per year on every household’s energy bill in the event of a future gas crisis. CfDs act more as a price stabiliser, ensuring prices can’t shoot up to super high levels.”
