More than £1bn of annual subsidies up for grabs in this year’s CfD auctions

More than £1 billion of annual subsidies will be made available in the upcoming Contracts for Difference (CfD) auctions, the government has announced, with £800 million up for grabs in the pot 3 auction for offshore wind.

The budget for the pot 1 auction for mature technologies such as onshore wind and solar will be £120 million, whilst £105 million of yearly subsidies will be offered in the pot 2 auction for less-established technologies, including floating offshore wind.

The overall budget of £1,025 million is the largest to date and more than quadruple the amount available in the previous auction round.

The Department for Energy Security and Net Zero (DESNZ) said none of the pots will be subject to capacity caps. In the pot 2 auction, tidal stream and geothermal projects will have first dibs on £10 million and £8 million of annual subsidies respectively.

The sixth allocation round (AR6) is due to open on 27 March.

In the pot 3 auction, there will be separate clearing prices for new and “permitted reduction” offshore wind projects. The latter refers to projects that formed part of larger developments that were awarded CfDs in previous auction rounds but have since gone through the permitted reduction process. This process was introduced to allow projects to withdraw up to 25% of their original capacity from their contract and then enter this capacity into AR6 as a standalone project.

DESNZ has additionally confirmed the maximum strike prices available for different technologies. In an effort to placate the industry, energy secretary Claire Coutinho had already announced hikes in the administrative strike prices for multiple technologies in November after no offshore wind projects entered last year’s auctions due a spike in supply chain costs.

The administrative strike price for offshore wind was raised from £44/MWh to £73/MWh, and from £116/MWh to £176/MWh for floating projects. The cap for solar farms was bumped from £47/MWh to £61/MWh.

Energy UK chief executive Emma Pinchbeck welcomed the budget notice, saying the government had listened the industry’s concerns: “It’s particularly welcome that the government has recognised the economic and market conditions facing offshore wind developers.

“A big increase in the budget for AR6 means investing more in homegrown sources of clean power that will bolster our energy security and reduce emissions – and bring wider economic benefits across the country.

“While we still face an uphill battle to meet the 2030 target for 50GW of offshore wind, today has sent out an important signal in the face of growing international competition for investment and will help re-establish the UK as a leader in offshore wind.”

Keith Andreson, chief executive of Scottish Power, said: “The government has taken a major step in the right direction today by quadrupling the available budget – a clear statement of intent in ramping up the ambition to bring cheaper, greener energy onto the system quickly.

“I expect the auction to be hugely competitive. Given the scale of the available pipeline, there is always the opportunity to go further, and so we would encourage the government to revisit the budget in the light of developments.”

Sam Hollister, head of energy economics and finance at LCP Delta, said the £1 billion budget is “a significant step in the right direction given last year’s failure to attract any bids from offshore wind developers that was a major blow for the industry and consumer alike.”

He said the £800 million of subsidies for offshore wind could procure between 4GW and 6GW of capacity but warned “this may not be enough to get the UK back on track with time running out to build the additional 23GW needed by 2030″.

However, writing on social media, Carbon Brief deputy editor Simon Evans said this “big sounding budget” would only buy 3GW offshore wind if all projects came in at the maximum strike price of £73/MWh, adding: “This effectively ends any chances of reaching [the government’s] goal for 50GW of offshore wind by 2030.” He said LCP’s range implies strike prices “well below” the cap at £50-60/MWh.

Dan McGrail chief executive of Renewable UK expressed similar sentiments: “Although we welcome this budget increase, as it recognises that global economic conditions have changed, the Treasury has missed the opportunity to maximise the amount of offshore wind capacity which the UK could have secured in this year’s auction for new clean energy projects.

“We have more than 10GW of capacity eligible to bid in this summer. Building this is essential if we’re to make up lost ground from last year’s auction and create the substantial pipeline required to accelerate supply chain investment and growth in the UK. This funding will only secure between 3-5GW.”

He continued: “Offshore wind is one of the UK’s cheapest sources of new power and is vital in boosting our energy security and independence from expensive imported gas. That’s why we’re urging ministers to be more ambitious in revising this year’s auction budget upwards if new projects are consented in time, and to aim high in future annual auction rounds.

“This would enable them to get closer to their own target of 50GW of offshore wind by 2030 – over three times our current capacity. At the current pace, this target looks unachievable.”

Aurora Energy Research recently told Utility Week more than 12GW of offshore wind projects could be eligible to bid in AR6.

Note: All figures given in 2011/12 prices.