Timing of election adds ‘uncertainty’ to CfD process

The timing of the general election has added “uncertainty” to the next Contracts for Difference (CfD) auction, with the incoming government having just weeks to finalise the budget.

More than £1 billion was set aside for Allocation Round 6 (AR6) earlier this year, but the government is yet to review the final budget and could still choose to increase it.

Under the indicative timeline scenarios for AR6, the government has from 22 May to 1 August to make the decision on whether to increase the budget.

Yet with the general election being called last month, and with all polls indicating Labour is likely to be in power on 5 July, concerns have been raised that there is little time to make a decision.

“The timing of the election has added a bit of uncertainty. We are seeing speculation on whether some of these auction parameters could be modified if there was a Labour government that came in,” Pranav Menon, associate at Aurora Energy Research, told Utility Week.

Menon added that at last year’s auction round, which saw no offshore wind projects entered into it due a spike in supply chain costs, there was “a very last minute” increase of around 11% in the budget.

He added that it was possible to see such a modification again, with a new government potentially wanting to “make a strong statement” about its renewable credentials and that this would impact how much capacity can be procured.

However, he added: “The one downside of increasing budgets is that this increases the notional impact on consumer bills. It doesn’t necessarily increase the consumer bills because of how the CfD works, but it could be perceived to do that, so that is one potential downside that could limit the amount the budget is increased by.

“Any increase and any revision would depend on how much interest the auction is seeing so depending on the number of projects that finally qualify to participate in these different pots and the bids that are coming through, the revision would depend on that.”

It comes as National Grid Electricity System Operator (ESO) recently confirmed that developers will have to wait until early September to discover if their bids have been successful in AR6.

It had originally been hoped that the auctions could be completed by the end of June or in July.

However, the ESO confirmed earlier this week that at least one non-qualifying applicant has lodged an appeal with Ofgem.

This means the remaining stages of AR6 will run to timeline scenario five, the longest timeline outlined at the start of the process.

There are concerns from industry about the impact this will have on the UK’s interconnection ambitions, with National Grid’s managing director of interconnectors Rebecca Sedler warning about the uncertainty of the longer wait time.

She told Utility Week: “The more uncertainty that we leave those wind developers with when they make their investment decisions… the harder it will be to co-ordinate with interconnectors. If you contrast that to what’s going on in the Netherlands where there is a more coordinated approach to the allocation of seabed leases, delivery of offshore platforms and consenting along the coast, it’s very different.

“Whilst we have made great progress with offshore wind development in meeting our targets, in terms of co-ordination with interconnection we’d really love to see innovation. Personally I have a lot of empathy for wind developers who are looking to bid into the next auction and need certainty, as I understand what it does to your investors’ confidence when there are regulatory delays.”

Elsewhere in the sector however there is not as much concern about the length of time before AR6 is completed, with renewables developer RWE saying confirmation that the allocation round will run on the longest timeline is “not unexpected”.

“The CfD allocation framework is clear, with timings contingent on qualification of applications and subject to any disputes and appeals process,” a spokesperson said.

Equally, Menon said the last two auction rounds followed the longest possible timelines and that the latest announcement “was not something that was entirely unexpected”.

“I guess in some ways developers were expecting this and it doesn’t really create any additional uncertainty. It’s been the way things have been going for the last few rounds,” he added.

As much as 12.2GW worth of offshore wind projects could bid in the next auction. Project pipelines shared with Utility Week by industry analysts and trade bodies show that around 8GW of offshore wind projects already have secured planning consent, with the 4.1GW Berwick Bank project awaiting sign off on its planning application.