On Tuesday 6th May the Department for Energy Security and Net Zero (DESNZ) published its first response to the consultation on the Contracts for Difference (CfD) scheme for Allocation Round (AR) 7.
A number of changes are outlined, designed with the government’s Clean Power 2030 (CP30) ambitions in mind. If 95% of Great Britain’s generation mix is to come from ‘clean’ sources by 2030, AR7 is critical for ensuring sufficient capacity can be built in time.
No More Budget
The most significant change is the replacement of a monetary budget with a ‘capacity ambition’. The budget for AR7 will only be finalised after the auction, meaning it can in theory be adjusted according to the auction results. The secretary of state will be able to request anonymised bid information to help ensure an outcome that delivers sufficient new renewable capacity whilst balancing the impact on consumer bills.
Fixed Offshore Wind
As a result of these changes, the flexible bid system for fixed offshore wind has been removed. The government is however exploring ways to expedite the auction process for offshore wind. This comes amidst the recent blow of Orsted abandoning its Hornsea 4 project, which had secured a CfD in AR6 and would have added 2.4GW of capacity towards the targeted 43-50GW by 2030. This leaves around 25GW that needs to be contracted and built within the next 5 years.
Clean Industry Bonus
The Clean Industry Bonus (CIB) budget has also been published, at a value of £20.1 million per GW. Some of the budget is reserved specifically for floating offshore wind to support the development of the supply chain. The cost of the CIB will be factored into the CfD costs when calculating Ofgem’s price cap.
DESNZ will now start to implement the legislation governing these changes. A separate response will also be published addressing other amendments proposed in the consultation.
Looking to Extract Further Value from the CfD?
Renewable Exchange welcomes these ongoing adaptations to the CfD scheme, which are crucial for meeting Net Zero goals and ensuring energy security in Great Britain. If you have a project that has secured a CfD or are planning to bid in a future auction, reach out to discuss our services for CfD projects at [email protected].
