UK government earmarks GBP1.5 billion for contracts for difference pot

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The UK government has set a record-breaking budget for its next renewable energy auction, with just over GBP1.5 billion ($2 billion) available for allocation. An extra GBP530 million has been added to the Contracts for Difference (CfD) budget by the newly elected Labour government. It claims the extra funds will accelerate the deployment of wind, solar and other renewables.

When the budget for the sixth CfD auction was announced on 6 March 2024 it comprised GBP1 billion split between three pots. Pot 1 for established technologies, such as solar and onshore wind, totaled GBP120 million; Pot 2 for emerging technologies, such as tidal and floating offshore wind, was allotted GBP105 million; while the third and largest pot was allocated GBP800 million, set aside for offshore wind. Under the revised budget announced on 31 July 2024, an extra GBP65 million will go to Pot 1, GBP165 million to Pot 2, and an additional GBP300 million to Pot 3.

CfDs have been a key part of the UK renewable energy strategy since the first allocation round opened in 2014. The sixth CfD auction officially opened on 27 March 2024 under the previous government and had the highest budget on record at the time.

For a UK project to secure a CfD, developers that meet eligibility requirements must submit sealed bids. CfD contracts are allocated to the cheapest eligible projects first, although certain technologies may be granted first access to specified parts of the budget – for example, tidal projects will have first access to a portion of the Pot 2 budget in the sixth CfD auction. Successful developers at auction will be awarded a contract with the state-owned Low Carbon Contracts Company (LCCC). They will then be paid a flat rate for the electricity they produce over a 15-year period. Successful bidders are expected to receive notice from the electricity system operator later in 2024.

In the sixth CfD round, the ceiling price is set at GBP61/MWh for solar, GBP73/MWh for offshore wind and GBP64/MWh for onshore wind. Emerging technologies such as geothermal, tidal and floating offshore wind have higher cealing price, set at GBP157/MWh, GBP176/MWh, and GBP261/MWh, respectively.

In a statement, Mark Sommerfeld, deputy director of policy at the Association for Renewable Energy and Clean Technology (REA), described increasing the CfD budget as a “critical step” toward a secure, affordable and decarbonized power system.

“It is reassuring to see the new government move at speed, putting the UK back on track and helping secure significant amounts of new offshore wind and solar capacity, in particular. These are the lowest cost forms of power generation, while also helping to underwrite UK supply chains, skills and jobs,” he said.

Sommerfeld added that the REA would like to see the government remove caps on the monies emerging technologies such as geothermal can receive through CfD auctions. “This is critical to delivering a diverse and resilient power system for the UK.”

Sam Hollister, head of policy and investment at UK consultancy LCP Delta, also welcomed the increased CfD budget and highlighted the particularly strong boost it could give to offshore wind allocation.

“With the welcome boost to the budget, we could see the amount of offshore wind procured in this auction increase to somewhere between 5.5 – 9 GW, depending on the clearing prices. The UK currently has 14GW of offshore wind on the system, with a further 13 GW of CfD procured capacity already in development. If the UK is to reach its 55 GW target by 2030, this year’s CfD auction needs to be targeting 9 GW as a minimum, with the hope of securing additional allocations in the next two years,” he said.

Hollister added that more than doubling the Pot 2 budget sends a strong signal to emerging technologies, which in the United Kingdom mainly means floating offshore wind.

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