CfD auctions to double in size under Johnson’s ‘green industrial revolution’

Nearly 12GW of electricity could be delivered in the next Contracts for Difference (CfD) round following an announcement that the government is doubling the size of contracts awarded through the mechanism.

In his speech to the virtual Conservative party conference this morning (6 September), which placed green energy at the heart of his government’s post-pandemic recovery plans, Boris Johnson outlined what No 10 Downing Street described as the “first steps” in a ten point “green industrial revolution” to be fully unveiled later this month.

Measures announced today include setting a target to double the capacity of renewable energy in the next CfD auction, which is timetabled to open in late 2021. In the last CfD auction, which took place last September, contracts were awarded for 5.8GW of renewable power.

The announcement, which echoes calls from across the power sector to lift the cap on CfD auctions, follows a consultation into the future shape of the scheme during the summer.

The prime minister also announced that the government is creating a new target to deliver 1GW of floating offshore wind by 2030, which Johnson claimed in his speech is “over 15 times” current volumes worldwide.

And he unveiled £160 million for upgrading ports and infrastructure to help increase the UK’s offshore wind capacity, which No 10 claimed would create 2,000 construction jobs rapidly and enable the offshore wind sector to support up to 60,000 jobs by 2030.

The PM also pledged to roll out 40GW of offshore wind generation capacity by 2030, confirming last year’s Conservative manifesto commitment to raise the existing target of 30GW. The government claimed that the increased target would be sufficient to produce “more than enough electricity to power every home in the country”.  Demand on the transmission system peaked at around 47GW last winter, according to the National Grid’s ESO.

Johnson said that the drive to net-zero emissions would create jobs in wind, nuclear, hydrogen, CCS (carbon capture and storage), homes retrofitting and ground source heat pumps installation

He said: “Out in the deepest waters we will harvest the gusts, and by upgrading infrastructure in such places as Teesside and Humber and Scotland and Wales we will increase an offshore wind capacity that is already the biggest in the world.

“Mother nature has savaged us with Covid, but with the help of basic natural phenomena we will build back and bounce back greener; and this government will lead that green industrial revolution.”

Bold ambitions

The PM’s announcement received a warm welcome from the industry.

Keith Anderson, CEO of ScottishPower, said: “These bold ambitions and clear targets are exactly the right signals at exactly the right time.”

Energy UK’s chief executive, Emma Pinchbeck, said: “The energy industry will work with government to turn our world-leading low carbon power sector into a green recovery for the whole economy.

“The package of support for offshore and floating wind announced by the prime minister today takes a UK decarbonisation success story and winds it up to a scale fit for the green recovery, creating jobs and billions of pounds of investment.”

And Tom Glover, RWE UK country chair, said the prime minister’s announcement was a “major step”, which “further cements the UK as one of the most attractive markets for investment in offshore wind.”

Nick Molho, executive director of the Aldersgate Group of low carbon investors said it was a “very important milestone” but to deliver it, the government must provide “ambitious, regular and predictable” project auctions throughout the 2020s.

Style over substance

But Labour’s shadow energy minister Alan Whitehead said the PM’s offshore wind target was “big on style but sorely lacking in substance” because it would not meet anticipated increased demand for electricity.

“Ambition is important but it’s useless without a proper plan and package of proposals to deliver it.

“The target he outlines – 40GW – is less than half of the total capacity we would need by the early 2030s.

“He also didn’t set out how the current grid system will be updated to cope with energy generation on that scale. Currently wind farms are all individually linked to the grid – the equivalent of every single house having a cable to the mains grid rather than a local relay station.

“And crucially, offshore wind energy alone simply cannot do what the prime minister is saying. To power every home by 2030 we need other forms of low-carbon energy generation too, to offset the variability of wind, like solar, tidal lagoons, biomass stations and hydrogen.”

Sue Ferns, senior deputy general secretary of the union Prospect, also expressed scepticism that the prime minister’s rhetoric would be matched by reality.

“Prospect fully supports the call for 40GW of offshore wind but if we are actually to achieve net zero this needs to be part of a whole systems integrated approach. It must also be linked to a just transition strategy. An effective and inclusive skills strategy is key to achieving a green recovery.

“There is a long way to go. The number of green jobs is still below 2014 levels despite repeated promises from the government, partly due to particularly supply chain jobs being created overseas.”

LCCC stands ready

The CfD process is managed by the Low Carbon Contracts Company, whose chief executive Neil McDermott said: “The prime minister’s comments today are tremendously exciting for the UK’s offshore wind sector. Offshore wind has been one of the biggest success stories since the CfD scheme was launched in 2014 – we’re currently managing 40 contracts at 16 separate projects in the UK, representing 13GW out of a total CfD pipeline capacity of 19GW. Offshore wind CfD projects that have been built so far generated a total of over 8 TWh in 2019 – enough energy to power over two million households.

“We stand ready to support even more new projects through Allocation Round 4 next year, which will power the transition to Net Zero emissions by 2050 whilst benefitting consumers and communities around the UK.”