Out-Law News 1 min. read

UK government launches fourth CfD allocation round worth £285m

The UK government has launched the fourth Contracts for Difference (CfD) allocation round, as it aims to boost investment in renewable energy and secure an additional 12GW of electricity capacity in the coming years.

The CfD scheme is designed to support low-carbon electricity generation by providing direct protection from volatile wholesale prices for developers working on projects that have high upfront costs and long lifetimes.

It also protects consumers from paying increased support costs when electricity prices are high.

Developers from across Great Britain have until 14 January 2022 to submit a sealed bid to the National Grid ESO, which is responsible for the CfD allocation process, for a share of the £285 million annual funding package.

The majority of the package, £200m, is reserved for offshore wind technology developers, with £10m set aside for established technologies such as solar and onshore wind, and £75m for emerging technologies like remote island wind.

Of the £75m for emerging technologies, £24m has been ringfenced for floating offshore wind projects and £20m for tidal stream projects.

Successful applicants will enter a private law contract with the Low Carbon Contracts Company (LCCC), owned by the Department for Business, Energy and Industrial Strategy (BEIS), and receive a flat rate for the electricity they produce over a 15-year period.

The flat rate is calculated as the difference between the ‘strike price’ of the generated electricity, which reflects the cost of investing in low carbon technology, and the ‘reference price’, which is a measure of the average market price for electricity in the UK.

Previous CfD allocation rounds have seen a success in driving down the cost of renewable energy, with the price per unit of offshore wind falling by around 65% between the first round in 2015 and the third in 2019.

The government said that an expanded number of renewable energy technologies are eligible to bid in the latest round, including solar and onshore wind, as it aims to secure 12GW of electricity capacity - more than the previous three rounds combined.

Ministers said next year’s allocation round would be central to the government’s ambition to attain 40GW of offshore wind by 2030, including 1GW from floating offshore wind.

Business secretary Kwasi Kwarteng said the auction would “solidify the UK’s role as a world-leader in renewable electricity, while backing new, future-proof industries across the country to create new jobs.”

“By generating more renewable energy in the UK, we can ensure greater energy independence by moving away from volatile global fossil fuel prices, all while driving down the cost of new energy,” he added.

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