The UK Department for Energy Security and Net Zero (DESNZ) is exploring reforms to its flagship renewable energy generation scheme to reward applicants for including factors other than price.
The Contracts for Difference (CfD) scheme, which supports low-carbon electricity projects, along with its predecessor scheme FIDER, has so far awarded contracts to projects with a total capacity of 26.1GW.
In December 2022, the Department for Business, Energy and Industrial Strategy (BEIS) launched a consultation into changes to the Contracts for Difference (CfD) scheme’s Standard Terms and Conditions and Private Network Agreement for Allocation Round 5 (AR5).
The fifth CfD Allocation Round opened for applications in March 2023. However, the budget allocation for the latest round, which dropped to £205 million, was criticised by trade association RenewableUK. The group’s economics and markets manager Michael Chesser said: “The budget and parameters set for this year’s CfD auction are currently too low and too tight to unlock all the potential investment in wind, solar and tidal stream projects which the industry could deliver”.
The UK government is now seeking evidence about whether to award CfDs not just on price, but also “based on how much a renewable energy project contributes to the wider health of the renewable energy industry.”
‘Non price factors’ would be considered in the awarding of CfDs, such as supply chain sustainability, skills training, innovation and enabling system and grid flexibility and operability. The announcement suggests that the UK government is taking the problems of a lack of skills and supply chains that rely on imports more seriously.
Graham Stuart, minister of state for energy security and net zero, said that while CfDs had been successful, there was a need to “maximise the scheme’s potential to improve energy security and ensure renewable energy developers can make the necessary investment in supply chains and innovation”.
DESNZ said the announcement followed “recommendations made in Chris Skidmore’s Net Zero Review and the report earlier this month from the Offshore Wind Champion Tim Pick.”
Responding to the announcement, RenewableUK’s executive director of policy Ana Musat said: “Designing the right framework for Contracts for Difference is absolutely crucial if we’re to attract the billions of pounds of private investment we need to build more clean energy projects faster – at the very time when international competition for capital and expertise has never been more intense.”
There has been concern in the UK renewables industry that the US Inflation Reduction Act and similar moves by the EU could see the UK lag behind in investment in the sector.
“Going forward, it’s clear that awarding CfDs shouldn’t just be based on a race to the bottom on prices, but it should also take account of the wider economic and environmental benefits which this industry can deliver”, Ana Muscat said.
