Out-Law / Your Daily Need-To-Know

Record low prices mark latest UK renewable energy auction

Out-Law News | 25 Sep 2019 | 6:58 am | 1 min. read

The UK government has awarded contracts for difference (CfDs) to 12 new renewable energy projects, which will provide 6GW of generating capacity at record low prices.

The results of the latest CfD auction are “testament to the significant cost reductions being achieved on an ongoing basis, in the offshore wind sector in particular”, said renewable energy expert Alan Cook of Pinsent Masons, the law firm behind Out-Law.

The CfD scheme is the UK government’s primary method of supporting low-carbon electricity generation projects. Developers awarded a CfD following a competitive auction process receive a guaranteed payment for electricity generated over a 15-year period, but are required to pay back the difference when market prices are high.

CfDs were awarded to six offshore wind projects, two projects using advanced conversion technologies to produce energy from waste and four onshore wind projects on remote Scottish islands. Strike prices ranged from £39.65/MWh to £41.61/MWh, with the cost of offshore wind in particular now around 30% lower than that obtained during the 2017 CfD auction.

“It’s striking how low the prices are,” said Cook. “The outcome also shows just how competitive these auctions are across the technologies, with the number of projects significantly outweighing the capacity available within this allocation, and there are a number of notable absences from the list of onshore and offshore wind projects which have been successful in this allocation round.”

“The current judicial review challenge to the CfD process does highlight the issue of whether similar opportunities should be given to the likes of onshore wind projects as part of the programme towards the UK’s ambitious renewables and climate agendas, and further development of the UK government’s energy policy can be anticipated,” he said.

The CfD programme is open to ‘less established’ technologies, as it is intended to incentivise new projects by guaranteeing a stable income. Last month, developer Banks Renewables announced it had commenced judicial review proceedings against the government’s decision to exclude fully-consented onshore wind farms from the scheme. The developer has argued that doing so is “against the public interest, prevents consumers from benefiting from the lower energy prices that would result from their inclusion and, from a legal perspective, does not comply with either EU or UK law”.

The government is targeting the construction of 30GW of UK offshore wind generating capacity by 2030, providing an estimated 30% of the country’s total electricity generation, according to the recently-published ‘sector deal’ between the government and industry. Last week, The Crown Estate launched its fourth leasing round for offshore wind seabed rights, with the potential to support at least 7GW of new projects in the waters around England and Wales. Crown Estate Scotland is due to launch a similar leasing programme later this year.