Out-Law / Your Daily Need-To-Know

UK backs offshore wind in biggest ever renewables support round

Out-Law News | 16 Sep 2021 | 12:24 pm | 2 min. read

The UK government will make over £200 million of support available to offshore wind projects during the next round of the contracts for difference (CfD) support scheme, it has confirmed.

At least £265m will be allocated each year under the fourth round of the scheme, which opens for bids in December, according to the government announcement. Of this, £200m will be allocated to ‘fixed bottom’ offshore wind projects, while a further £24m from the £55m funding pot available to ‘less established’ technologies will be ring-fenced for floating offshore projects in deeper waters.

The funding could support enough new offshore wind capacity to power eight million homes, the government said. It has set a target of 40GW of new offshore wind capacity by 2030.

‘Established’ renewable technologies including onshore wind, solar and hydropower will also be able to participate in the upcoming allocation round, for the first time since 2015. The government has allocated £10m to fund up to 5GW of capacity from these technologies.

Renewable energy expert Ronan Lambe of Pinsent Masons, the law firm behind Out-Law, said: “That the vast majority of the £265m budget will be allocated to supporting offshore wind – both floating and fixed bottom – will not be a big surprise to many”.

“As this CfD allocation round includes delivery years from 2025-29 for offshore wind, the government is clearly banking on a sizeable proportion of the currently consented offshore wind capacity securing CfDs, as will be required to achieve its 40GW by 2030 target,” he said.

“While the readmissions of onshore wind and solar to the ‘established technologies’ pot received a positive response when it was announced, the fact is that only £10m has been allocated to support all of the technologies within pot 1, which is a relatively limited cap. With a pipeline estimated by one leading industry adviser of at least 3GW of solar and 5GW of onshore wind eligible to participate, competition for support among established technologies is likely to be fierce and may push some developers to consider other routes to market for their projects,” he said.

Of the 5GW limit on capacity that the government has imposed on pot 1 support, no more than 3.5GW may be awarded to either onshore wind or solar photovoltaic (PV) projects. A wide variety of established technologies including energy from waste with combined heat and power (CHP), landfill gas and sewage gas will also be entitled to bid for a share of this funding.

The CfD scheme is the UK government’s main method of incentivising investment in low carbon energy generation. They grant developers a stable income stream from the energy that they sell over a 15-year contract term, while protecting consumers from high wholesale prices. Contracts are allocated through a competitive auction process, with the cheapest projects in each funding ‘pot’ awarded contracts first, a policy which has driven down the cost of offshore wind by around 65%, according to the government.

The fourth allocation round is split into three ‘pots’: established technologies, less established technologies and fixed bottom offshore wind. Tidal stream, geothermal and wave power are among those entitled to bid for a share of the £31m pot 2 funding not ring-fenced for floating offshore wind.

Renewable energy expert James Todd of Pinsent Masons said that the ring-fenced funding “is a tangible commitment by the government to a technology which has the potential to allow the areas of our coast with the highest wind speeds to be exploited for electricity generation for the first time”.

“This has also been welcomed by the industry as a positive first step by the government – although the industry is also suggesting that, given the progress made in development and deployment of floating offshore wind technology, there is scope to be more ambitious than the government’s current deployment target of 1GW by 2030,” he said. “This is likely to be the next key debate around floating offshore wind in the coming months.”