UK to introduce annual renewables CfD auctions

Out-Law News | 14 Feb 2022 | 11:08 am | 1 min. read

Contracts for difference (CfD) auctions will be held annually in an effort to speed up the development of renewable energy projects, the UK government has announced.

CfD auctions - currently held every two years - are the government’s primary method of supporting renewable energy. They are 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.

The auctions also protect consumers from paying increased support costs when electricity prices are high and have so far attracted £90 billion of private investment commitments. The auctions will become annual from March 2023, when the next CfD round is expected to open.

Ministers said increased CfD round frequency was needed to accelerate low carbon electricity generation and meet the government’s pledge to fully decarbonise the electricity system by 2035.

Kwasi Kwarteng, business and energy secretary said: “We are hitting the accelerator on domestic electricity production to boost energy security, attract private investment and create jobs in our industrial heartlands. The more clean, cheap and secure power we generate at home, the less exposed we will be to expensive gas prices set by international markets.”

The government said its auction scheme has reduced the per unit price of offshore wind by around 65% since it was launched, and the last allocation round saw 12 new contracts awarded for nearly 6GW of further UK grid capacity - enough to power more than 7 million homes.

Melanie Grimmitt, energy industry expert at Pinsent Masons, said: “Understandably, this move has been welcomed by the energy industry as a vital step towards decarbonising the UK’s electricity system by 2035, which is not far away. The value of investing in our domestic energy supply has also been brought into sharp relief by the soaring prices of fossil fuels.”

The changes to CfD auctions come after the government announced £100m of funding for a large-scale nuclear project to support it reaching a final investment decision by the end of the current parliamentary term. Ministers have also backed a £120 million Future Nuclear Enabling Fund, a £210 million grant to develop a UK Small Modular Reactors design and committed to passing a Nuclear Energy (Financing) Bill.