Changes to UK’s renewable energy auction scheme announced

Out-Law News | 25 Nov 2020 | 3:01 pm | 3 min. read

The UK government has outlined a number of changes to its ‘contracts for difference (CfD) auction scheme for renewable energy projects ahead of the fourth allocation round next year.

The changes follow a consultation process ahead of the CfD allocation round 4, which will see onshore and solar wind projects eligible to participate for the first time since allocation round 1, and an extension of the deadline by which generators must demonstrate delivery progress, among other amendments.

The CfD scheme supports low-carbon electricity generation by enabling developers of renewable projects to enter into contractual agreements with a government owned company, the Low Carbon Contracts Company following a competitive allocation process, which is set to have its fourth round late next year.

In its consultation response (72 page / 542KB PDF), the government confirmed it will maintain the existing ‘pot’ structure for the scheme and keep the same approach to setting administrative strike prices, but will introduce a third pot for fixed bottom offshore wind projects. The pot structure is designed to support low-cost renewable generation.

Energy market regulation expert Ronan Lambe of Pinsent Masons, the law firm behind Out-Law, said: “There has quite rightly been considerable focus on the game-changing impact which increasing offshore wind deployment can have on achieving net zero by 2050.

“The decision to include fixed bottom offshore wind in a separate pot rather than retaining this technology in pot 2 for less well established technologies has the capacity to reduce the risk that fixed bottom offshore wind crowds out other technologies which have the potential to make a sizeable contribution to net zero ambitions, such as onshore wind, solar, marine technologies and floating offshore wind,” Lambe said.

Floating offshore wind projects will now be treated as a separate eligible technology from fixed bottom offshore wind, due to the technology being in the earlier stages of its development. This will mean that floating offshore wind has a different administrative strike price from fixed bottom offshore wind, and it will compete against other less-established technologies in pot 2.

Lambe said the move was an important step towards fulfilling the government’s recently announced target of 1GW of floating wind capacity by 2030.

“The floating wind industry will undoubtedly be studying the clarifications made around minimum water depths – reduced from 60 metres to 45 metres – and the fact that offshore substations, if required, can be either floating or fixed bottom. These would appear however to be indications that government is listening to industry on issues requiring clarity if the 1GW target is to be achieved,” Lambe said.

The government is also planning to extend the ‘Milestone Delivery Date’ – a deadline for generators to provide evidence of the progress they have made on a project – from 12 to 18 months. The change has been made in order to better align with project timelines and Lambe said it would be welcomed by developers, particularly those in the offshore wind industry.

“Many developers felt that the previous 12-month period put considerable pressure on procurement and financing processes and could be used by the supply chain to put undue pressure on developers. While this pressure was more acutely felt in larger, more complex projects such as offshore wind and Advanced Conversion Technology, government has taken the view that the most appropriate thing to do is to extend the period for all eligible technologies, giving a welcome boost to onshore wind and solar developers seeking to participate in the next CfD allocation round,” Lambe said.

In the consultation the government proposed extending the supply chain plan process to projects with a capacity of less than 300MW. It said it would not do this, although it will develop criteria based on the aims and objectives of the five foundations of the Industrial Strategy to better align supply chain plans with government aims to achieve net zero by 2050.

Lambe said the decision not to force projects with a sub-300MW capacity to submit a supply chain plan would be “a welcome relief”, particularly to some developers of larger onshore wind and solar plants who might have considered this condition to extend to them if the threshold was substantially reduced.

“Given the increased focus in the industry on issues such as local content and competition in supply chains, it is perhaps not surprising that government is further consulting on potential changes to the supply chain plan process, including the potential to include an operational condition precedent in the CfD terms and conditions which focuses on supply chain plan compliance – something which was arguably erroneously excluded in previous allocation rounds,” Lambe said.