Offshore wind moved into mature technologies CfD pot

Offshore wind will compete against onshore wind and solar in the pot 1 auction for established technologies in the next Contracts for Difference (CfD) allocation round launching in March.

The auctions will return to a two-pot structure for the fifth allocation round, which will be the first to be held on annual basis as announced by the government in February.

The fourth round, the results of which were released in July, included a third separate pot for offshore wind on the grounds that the technology was still insufficiently mature to compete against onshore wind and solar in the pot 1 auction but would smother other developing technologies if it remained in pot 2.

The Department for Business, Energy and Industrial Strategy has published the core parameters for the fifth allocation round, including the full list technologies and delivery years for each pot and the administrative strike prices for each technology.

Pot 1 will be open to offshore wind, onshore and remote island wind (more than 5MW), solar photovoltaic (more than 5MW), hydro (more than 5MW and less than 50MW), sewage and landfill gas, and energy-from-waste with combined heat and power (CHP). The delivery years will be 2025/26, 2026/27 and 2027/28.

Pot 2 will be open to floating offshore wind, tidal stream, wave, geothermal, anaerobic digestion (more than 5MW), advanced conversion technologies (biomass) and dedicated biomass with CHP. The delivery years will be 2026/27 and 2027/28.

The administrative strike prices – the maximum strike prices that technologies can receive – are as follows:

Energy and climate minister Graham Stuart said: “Last year’s Contracts for Difference scheme secured a record amount of clean, homegrown energy, and continues to deliver green growth across the country.

“Today’s update to the scheme’s design provides further clarity for renewable project developers investing in new low carbon technologies.

“I look forward to 2023 as the UK reinforces its role as a world-leader in renewable electricity, creating green jobs, reducing emissions and boosting energy security across the country.”

BEIS has also published a consultation on potential changes to the CfD scheme for the sixth and subsequent allocation rounds.

For the sixth allocation round, the department has proposed to make electricity supplied by private wire to offshore wind oil and gas facilities ineligible for CfD payments.

For subsequent rounds, BEIS said it is considering whether:

• the definition of floating offshore wind should be amended to clear up any ambiguities over whether new and innovative foundations will be considered eligible
• offshore wind farms connected to a multi-purpose interconnector should be eligible to apply for CfDs and how this could be enabled
• phasing policy should be retained for fixed-bottom offshore wind projects
• the current CfD appeals process remains appropriate given the shift to annual auctions
• the CfD is an appropriate mechanism to support repowering projects

BEIS said it plans to hold a separate consultation this winter on changes to Capacity Market rules. Although the Capacity Market and CfD rules are designed to prevent parties from receiving support from both schemes at the same time, they are intended to allow capacity providers to withdraw from the Capacity Market so they can compete in CfD auctions.

However, the department said the way the rules interact means they cannot effectively take advantage of this flexibility. It said any changes resulting from this consultation are expected to be implemented in time for the sixth CfD allocation round.

Furthermore, BEIS said it may be necessary to adapt the CfD scheme in light of “geopolitical and cost pressures” that are “affecting the ability to deploy renewable energy projects quickly across the globe, with risks to decarbonisation objectives and security of supply.”

“The GB system has prioritised securing low costs for consumers, and the purely price-based CfD is extremely well suited to this,” the department explained. “Elsewhere, other countries such as the USA and many across the European Union, have begun to consider other objectives as well.

“In these countries, renewable energy CfDs, leasing rounds and tenders feature an increasing number of ‘non-price criteria’, where outcomes are not solely determined on the financial value of a bid, but also on other criteria, for example sustainability, project resilience and system integration. There may be a case for valuing more of these objectives in the UK in a way which continues to encourage low carbon electricity generation.”

“The government will in due course engage renewable energy stakeholders on these matters and, if pursued, run a detailed consultation,” it added.

The deadline for responses to the consultation is 7 February 2023.