The British government has heeded calls from the renewable energy industry and decided to stage the contracts-for-difference (CfD) auctions which allocate new clean energy generation capacity annually, rather than every two years.
The change will take effect from the next CfD auction, which is planned to be held in March next year.
The decision, announced by the Department for Business, Energy and Industrial Strategy (BEIS) on Wednesday, contained few details of what form future auctions will take but it was welcomed by UK renewables umbrella trade body the Association for Renewable Energy and Clean Technology.
The association’s policy director, Frank Gordon said: “We and others have called for more frequent auctions for a number of years, most recently in response to the energy bills crisis. More power will be needed as sectors decarbonize and moving to renewable, domestic energy supplies is ultimately the only way to prevent us being exposed to volatile international fossil fuel prices that drive bill increases, while enabling [a] net zero [economy].”
Under the CfD bidding rules, clean power generators agree a strike price, via auction, which determines the income they will receive from the sale of the electricity they generate. The power is sold on the day-ahead wholesale market and when the market price is below the agreed strike price, the government makes good the difference. When power prices are above the strike price, generators bank the receipts before returning the difference to the government.
Quoted in the BEIS announcement heralding the change in frequency of the auctions, Dan McGrail, chief executive of wind and tidal power trade body RenewableUK, said: “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. There’s a huge appetite among renewable energy developers to invest in building more projects, which will help to grow the UK supply chain at a faster rate. This will enable us to maximize the economic benefits which this sector offers to everyone, especially in parts of the country which urgently need leveling up.
Net zero
“We need [to] build up to 4GW of new offshore wind capacity every year to stay on track for net zero, which means quadrupling our current annual rate. Similar increases in onshore wind, solar and other clean power sources are vital too, as well as ramping up the roll-out of innovative technologies like floating wind, green hydrogen and marine power.”
Solar and onshore wind were ineligible for CfD auction incentive support between 2015 and the latest round, where they have been readmitted, although only £10 million (€11.9 million) of the £285 million (€341 million) budget for the procurement round has been allocated for the mature technologies.
The government held a fact-finding exercise a year ago which potentially foreshadows a tapering down of subsidy support for CfD-backed projects, with industry opinion sought on proposals including reducing the length of CfD payment contracts, whether extending and repowering projects should qualify for subsidy, and whether the auctions should be used to nudge clean power projects to less advantaged parts of the UK.
