Third contracts for difference round kicks off

The third competitive contracts for difference allocation round, which will see up to £65 million of annual subsidies awarded to renewable energy projects, has kicked-off today (29 May).

The auction is expected to show continued reductions in the cost of offshore wind and could even see strike prices fall to subsidy-free levels for the first time.

Developers now have until 18 June to submit applications, which then will undergo an assessment between 19 June and 9 July. The exact timetable from then onwards depends on whether any projects are disqualified and if any of the developers mount an appeal.

Those projects that do qualify will be invited to submit sealed bids from 19 July at the earliest. The soonest the results will be revealed is 18 August, although they could come as late as November.

With no maxima or minima for particular technologies and onshore wind and solar excluded, the auction will almost certainly be dominated by offshore wind.

The strike prices for offshore wind have been capped at £56/MWh and £53/MWh depending on the commissioning year.

As the reference prices used to assess the value of the contracts are only slightly lower – ranging from around £48/MWh to £52/MWh for intermittent generation between 2023 and 2027 – the £65 million budget could secure a significant volume of new capacity.

This is despite the budget being little more than one-fifth of the £290 million of annual subsidies offered in the previous auction and one-tenth of the £557 million the government has pledged for subsequent rounds.

Speaking to Utility Week in March, Aurora Energy Research said the draft budget of £60 million could buy up to 2.3GW of offshore wind capacity if you assumed a reference price of £50/MWh and a strike price of £56/MWh, and 4.6GW if you assumed a strike price of £53/MWh.

The strike price would not need to fall much lower for the contracts to effectively become subsidy-free, at which point the volume of capacity procured would only be limited by the 6GW cap set by the government.

Three offshore wind projects secured subsidies in the previous allocation round in 2017 – two at a strike price of just £57.50/MWh. Renewable UK deputy chief executive Emma Pinchbeck hailed the auction as a “mic drop” moment for the industry, demonstrating how offshore wind is already cheaper on a per megawatt hour basis than new nuclear or gas generation.

The government has committed to quadrupling the UK’s offshore wind capacity to 30GW by 2030 as part of a new sector deal announced in March.