On October 18th 2024, the Department for Energy Security and Net Zero (DESNZ) announced its response to the consultation held in January regarding amendments to the Contracts for Difference (CfD) scheme. These updates will take effect in next year’s auction, known as Allocation Round 7 (AR7).
Main Amendments to the CfD Scheme:
Inclusion of repowered onshore wind projects
One of the significant changes is that repowered onshore wind projects will now be allowed to participate in the auction. Repowering involves replacing older turbines with newer, more efficient models that have higher capacity. This process enables the same area to generate more renewable energy. Access to the CfD auction will facilitate the development of further repowering projects and help unlock stalled projects that require a robust long-term route to market in order to be viable. This echoes the changes made to the Feed in Tariff (FiT) in 2021 to incentivise repowering.
Phased approach for floating offshore wind
Another key update extends the phased approach, previously adopted for fixed offshore wind projects, to include floating offshore wind. This approach allows projects to be developed in stages, which reduces risks associated with project delivery. As technological advancements have progressed, several floating offshore wind projects are now being developed with capacities exceeding 1GW, bringing floating offshore wind to the scales where a phased approach contributes significantly to de-risking the project.
Topics for Future Consideration
While several topics were discussed in the consultation, not all changes will be implemented for AR7. One such topic is co-location and hybrid metering. The decision not to proceed stems from the existing complexities and uncertainties about how these projects fit into the broader electricity system. However, this topic may be revisited in future discussions.
Additionally, there was feedback regarding the indexation of CfD strike prices. Currently, these prices are linked to the Consumer Price Index (CPI). Concerns were raised about potential exposure during the time between bidding and reaching the Final Investment Decision (FID). While the government considered indexing strike prices to the Producer Price Index (PPI) during construction, respondents indicated that CPI is less volatile and can be more easily hedged. As a result, the issue of CfD indexation might be explored further ahead of upcoming auctions.
Appeals Process and Timeline
Following the consultation, the government decided not to introduce a pre-qualification process or change the grounds for appeal. However, there are plans to establish a fixed timeline for appeals starting in 2026, addressing feedback that highlighted the current uncertainty surrounding CfD auction timelines.
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].
