Solar industry warns against ‘radical’ shake-up of CfDs

The government has been warned about the risks of “radical” changes to the CfD (Contracts for Difference) regime by solar developers.

In its response to a call for evidence paper on introducing non-price factors into CfD auctions, published in April by the Department for Energy Security Net Zero (DESNZ), Solar Energy UK raises concerns that introducing uncertainty by reforming the low carbon generation support scheme will reduce investor confidence.

Under the current CfD regime, the 15-year contracts are awarded to the lowest priced bidder via competitive auctions.

While these auctions have helped to drive down the cost of renewable power, the call for evidence was prompted by worries that focusing solely on lowest cost bids may undermine the pursuit of other goals, such as energy security and the development of a UK supply chain.

However introducing non-price factors into the CfD process may undermine the business case for new projects, Solar Energy UK says: “The importance of not making radical changes to the existing system of CfDs cannot be stressed enough.”

A “high level of uncertainty” about the implications of non-price factors could lead to a hiatus in renewables investment, it adds.

Of three options outlined in the call for evidence for introducing non-price factors, such as support for the supply chain and infrastructure, the solar umbrella body points to top-up payments as the “most workable”.

This would involve adding top-ups once the auctions have been run, which would then be paid over the initial years of the contracts, the DESNZ paper proposed.

Solar Energy UK says that the top up proposal is the only one of the three options, outlined in the consultation paper, which offers developers and project investors a clearly visible financial value that can be factored into a core investment case and a transparent process capable of being independently assessed.

The response also says that if non-price factors are introduced into the CfD process, rewilding and other nature restoration activities should be formally recognised.

And it says that any changes to the CfD process should be announced at least two years ahead of allocation rounds because developers are likely to require significant preparations.

This call is backed up in the response to the consultation by RenewableUK. It says that timely factoring in of non-price factors, such as when the seabed is being leased for offshore wind projects, creates greater scope to build capacity like investment in infrastructure.