CfD awards: a boost for the UK renewable energy industry?

Yesterday, the Government announced the latest results of its auction for Contracts for Difference (CfD). Awards have been made to 131 renewable energy projects. This round has been hailed as the most successful CfD auction, with a record number of projects winning contracts. But does this provide the boost that the renewables industry needs?

The Contracts for Difference scheme was first launched in 2014 as a way of supporting the UK’s transition to Net Zero. There have been a total of six allocation rounds (“AR”) (auctions) wherein renewable energy generators that meet the criteria apply for a CfD. The CfD itself is a private contract between a government-owned Low Carbon Contracts Company and the electricity generators. CfDs are usually for a 15-year duration and provide investors with a long-term fixed price for the electricity generated, giving certainty to the future of their investments and shielding them from market volatility.

The projects in this latest allocation round, AR6, will generate a total of 9.6GW of renewable energy, providing enough electricity to fuel the equivalent of 11 million UK homes.

Most significantly, a total of nine offshore wind contracts have been awarded by the Government. This is a marked improvement from AR5, where there was not a single bid for offshore wind, predominately due to the low advertised strike price. Since the last allocation round, the previous government increased the strike price to reflect the rising supply chain costs and ensure a more competitive auction.

The nine offshore wind projects announced today will provide a capacity of 4.9GW. Notably, however, only two of the nine offshore wind contracts awarded will be new developments: Hornsea Four and East Anglia Two.  Seven projects took advantage of the “permitted reduction” mechanism which allows existing projects to withdraw up to 25% of their original capacity and bid again – often to reflect increasing supply chain costs. 

A positive start, but work to be done

Clearly this news will be welcomed by many and it is without doubt positive news for the renewable energy industry as a whole. Delivering a successful CfD round so early on demonstrates the Government’s commitment to its manifesto pledge to “make Britain a clean energy superpower”.

However, there is a long way to go. Following the disappointment of AR5, the offshore wind industry is celebrating yesterday’s awards; but the same cannot be said for the onshore industry. With just 990MW of onshore capacity secured, compared to the previous 1.7GW award, the pace of delivery in the onshore sector appears to have slowed. 

Each successful project will still require a Final Investment Decision to be made in the coming 12 or so months.  Challenges facing all renewables projects are ensuring they have adequately resourced labour and materials supply chains in place; and negotiating robust and effective construction contracts to prevent overspend and delays through the construction phase.

The Government’s aim remains to produce 60GW of energy through offshore wind by 2030. To meet this ambitious target, it needs continue to rapidly progress offshore wind generation; support the expansion of UK renewables supply chains and ultimately deliver an even more successful AR7.