The UK government is consulting on reforms to its renewables auction scheme, contracts for difference (CfD), that it says would “pave the way” for more renewables projects to come online by 2030.
Having set out target generation capacity in its Clean Power 2030 Action Plan (CP30), the government is addressing the barriers to realising its goal by reforming the CfD scheme to provide greater certainty to investors and a “better deal for consumers”.
According to the Department for Energy Security and Net Zero (DESNZ), the UK already has 30.7GW of offshore wind either installed or committed, with a further 7.2GW of capacity consented, against a target capacity range of 43-50GW needed for clean power by 2030.
The proposed reforms are:
- Relaxed eligibility criteria on planning consent for fixed-bottom offshore wind.
- Changes to the way budgets for offshore wind are set and published, allowing the government to view bid information in anonymised form.
- Increasing the CfD contract term beyond the current 15 years.
- Enabling CfD support for repowered onshore wind projects (operational projects looking to increase their capacity).
- Extending phasing to floating offshore wind (FLOW) projects.
- Increase the Target Commissioning Window (TCW) for solar projects from 3 to 6 months.
- Removing the ability of existing CfD generators to apply surrendered capacity from previous allocation rounds into AR7.
Applications for AR7 are expected to open in summer this year. The government’s consultation is running until 25 March, and its decision is expected before AR7 opens.
Last year’s allocation round, AR6, had the largest-ever budget allocation and delivered 128 projects with 9.6GW of capacity. CP30 promised CfD reform to better enable renewables development.
The proposed reforms will enable more wind generation to come online ahead of 2030 at better value for money because, the government said, offering longer CfD contracts could reduce the cost of financing renewable projects and lower the strike price reached in the allocation round.
The REMA Autumn 2024 update committed to honouring future commitments made under the seventh CfD allocation round; however, the industry has warned that a shift to a zonal pricing model—one of the potential REMA outcomes—could expose projects to pricing risk.
Longer commissioning window for solar PV
Under current CfD rules, developers must include a start date for a three-month target commissioning window (TWC) in their allocation round submission, which must overlap with one of the delivery years offered during the CfD allocation round.
If a generator has not commissioned its project by the end of the TCW, the 15-year payment term starts regardless and the project will receive less subsidy on a day-for-day basis as a result (known as ‘contract erosion’). This ‘cliff edge’ provides a financial incentive for CfD generators to plan to deliver their projects during the TCW to secure maximum available subsidy.
While the majority of generating technologies eligible for CfD allocation have TWCs of 12 months, solar has a three-month window due to its relatively quick pace of commissioning.
However, the government acknowledged that the increasing size of projects in the pipeline could become a “potential barrier to deployment of solar”.
Energy secretary Ed Miliband said: “Our bold new reforms will give developers the certainty they need to build clean energy in the UK, supporting our mission to become a clean energy superpower and bring down bills for good.”
Neil McDermott, CEO of the Low Carbon Contracts Company, which delivers CfD contracts on behalf of the government, added: “Maintaining investor confidence is crucial to delivering Clean Power by 2030, and LCCC remains committed to ensuring any changes are implemented smoothly, helping to unlock further private investment in the sector.”
