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Contracts for Difference auctions to be held annually in ‘major step forwards’ for net zero transition

Offshore wind has been the biggest recipient of support from the CfD's, but the most recent round also offered floating wind, onshore wind, solar and other technologies support. Image: Getty.

Offshore wind has been the biggest recipient of support from the CfD's, but the most recent round also offered floating wind, onshore wind, solar and other technologies support. Image: Getty.

Contracts for Difference (CfD) auctions will now be held annually as the government looks to accelerate domestic renewable electricity production.

The scheme – which forms the government’s primary method of supporting renewable energy – currently holds auction rounds every two years. But from March 2023, when the next round is set to open, this will change.

“We are hitting the accelerator on domestic electricity production to boost energy security, attract private investment and create jobs in our industrial heartlands,” said business and energy secretary Kwasi Kwarteng.

“The more clean, cheap and secure power we generate at home, the less exposed we will be to expensive gas prices set by international markets.”

It follows the CfD scheme opening to more technologies for its fourth round, with pot one technologies such as onshore wind and solar able to bid into the latest round. It opened for bids in December, with a target of 12GW of electricity capacity set to gain £285 million of funding. Results of the auction, which closed on 14 January, will be announced in Spring/Summer, the government said.

In the previous CfD round, 12 contracts for nearly 6GW of renewable capacity were awarded. Since it was first launched, the scheme has awarded contracts totalling almost 16GW of new renewable electricity capacity.

There has been around a 65% reduction in the per unit price of offshore wind since the first auction round. Additionally, a consultation was launched by the Department for Business, Energy and Industrial Strategy earlier this week (7 February) to examine how changes to the CfD mechanism’s supply chain could further drive down the cost of energy generation.

The CfD scheme has been an important driver of technology reductions in the UK, as well as helping to leverage £90 billion of private investment by 2030.

As such, the increase in its frequency has been welcomed by the energy sector, with Dan McGrail, chief executive of RenewableUK saying:

“Moving to annual CfD auctions is a major step forward which will significantly accelerate the speed of our nation’s transition to net zero. It’s good news for consumers too, as it means the UK will be reducing its vulnerability to volatile international gas prices and increasing the volumes of low cost renewable energy in our energy system."

Calls to expand Britain’s domestic renewable generation faster have grown due to the volatility of power prices in recent months driven by high gas prices internationally. The price cap is set to jump 54% in April as a result, straining millions of consumers in the UK.

While wholesale power prices have grown, projects developed through the CfD scheme have actually returned around £39,222,407 to energy suppliers.

Generators awarded CfD contracts receive top-up payments to the strike price they are paid for the electricity they generate, but if market prices rise beyond their strike price, they also pay back the difference.

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