Renewable energy trade association RenewableUK has published a report recommending what it calls “simple, evolutionary” reforms to the current allocation process for the government’s Contracts for Difference (CfD) scheme.
It says that while the results of the sixth allocation round (AR6) showed investor confidence in the UK’s offshore wind market has returned, ambitious subsequent auctions will be “absolutely critical” to achieving the government’s clean energy mission.
The report, titled Revitalising the Contracts for Difference Scheme, lays out five policy recommendations:
- More market-reflective auction parameter assumptions: Unrealistic reference price and load factor assumptions act as a major barrier to deployment because they overestimate the cost of renewable energy. As such, the government should collate a selection of trusted independent price curves to arrive at a weighted average figure.
- Provide long-term certainty to developers and supply chain by setting a target capacity for each auction pot. The government should also set clear technology deployment targets beyond 2035 to act as a “north star” for auction volume targets.
- Increase the tenure of CfD contracts to reflect longer project lifecycles: Currently contracts sit at 15 years, which RenewableUK suggests should be extended to 20 years or more. Doing so would provide long-term certainty that could lead to strike price reductions.
- Provide delivery year flexibility within the CfD allocation framework: To mitigate the impacts of delayed grid build out, supply chain constraints and construction risk, delivery year flexibility would lower risks and strike price impacts. RenewableUK says this would also account for the difficulties of larger projects built in more challenging physical locations.
- Progress the reform proposals made in the AR7 & Future Allocation Rounds consultation to unlock new capacity.
RenewableUK’s chief executive Dan McGrail said: “The industry is ready to work with government to achieve [its renewable energy targets], and the reforms set out in this new report outline practical steps to provide long-term assurance to developers and the supply chain, whilst building on returning investor confidence following this year’s encouraging auction results.
“Several of the proposals can be implemented without major legislative reform in time for the next auction round in 2025, reducing costs whilst ensuring we procure increasing levels of new renewable energy as we look towards 2030 and beyond on our journey to becoming a clean energy superpower.”
CfD reform consultation
The reforms suggested in the AR7 & Future Allocation Rounds consultation, which concluded in March this year, include lifting the phasing cap for fixed bottom offshore wind from the current threshold of 1.5GW. RenewableUK suggests that phasing is extended to floating offshore wind from AR7 onwards and that each be afforded a higher capacity.
The consultation also discussed hybrid metering, which RenewableUK says would work well for onshore wind and solar sites. However, work needs to be done to ensure barriers to co-location are removed for offshore wind, too.
Revitalising the Contracts for Difference Scheme also picks up the proposed change to allow repowering projects to enter CfD auctions. The high up-front costs associated with repowering are, according to RenewableUK, equivalent to those of a new-build “green-field” projects. As such, similar support should be offered.
Repowering will be vital for retaining capacity in areas that already have local acceptance, existing relationships with landowners, and existing connection to the transmission network.
The Department for Energy Security and Net Zero (DESNZ) is looking to support repowering onshore wind projects from as early as AR7—perhaps a more viable route to increasing capacity in the near-term, given the de facto ban that prevented onshore wind development in England until recently.
For RenewableUK, a commitment should be made to develop a broader end-of-life strategy early. Doing so would ensure cost-effective decisions for lifetime extension and repowering as assets come off the Renewables Obligation scheme in the late 2020s and off CfDs from the early 2030s.
