The government today confirmed increases of 50 per cent and higher in Contract for Difference ceiling prices offered to next year’s projects bidding to boost new UK wind and solar generation.
Today’s move is aimed at reversing the disaster of this year’s Allocation Round 5, which attracted no bids in offshore wind.
Whitehall’s leaving last year’s administrative bid ceiling unchanged at £44 per MWh in the benchmark sector resulted in developers entirely shunning offshore CfDs this year, faced as they were with steeply rising input prices of securing and erecting turbines at sea.
Now the government seeks to attract more developers, with an administrative price rising 66% next year to £73 per MWh for offshore wind. Less established floating wind rises 52%, from £116 to £176 per MWh.
In next year’s Allocation Round 6, ministers confirmed that offshore wind will be given its separate funding pot, due to the high number of projects ready to participate. The government seeks early delivery of projects in the sector’s pipeline, fulfilling policy ambitions for 50GW of marine wind as this decade ends, including as much 5GW from floating turbines.
Solar PV too saw disappointing take up of new capacity under the past year’s AR5. Today the technology’s representative body welcomed Whitehall’s easing of its purse strings.
For solar power the administrative strike price for next spring’s Round 6 allocations will rise from £47 to £61 per MWh.
Geothermal’s equivalent climbs by 32%, to £157 per MWh. For tidal generation the rise is 29%, up to £261 per MWh.
Applications for Allocation Round 6 will open on 27 March, and winners will be made public from late summer.
Attracting 30 GW of new clean capacity since CfDs’ introduction in 2014, successive bidding rounds have seen renewables’ contribution to UK electricity surge from 6 per cent in 2010 to 48 per cent by spring 2023.
The contracts provide a guaranteed income for renewable assets, whatever happens to electricity’s wholesale price. If that falls below the strike price, the Government pays the difference. If the wholesale cost is greater, then winning firms must pay the difference.
With wholesale benchmarks elevated for three years due to the Covid pandemic and Putin’s war on Ukraine, assets under CfDs will have being paying significant sums to the Treasury.
Energy security secretary Claire Coutinho, pictured, recognised the challenges facing procurement in offshore wind, where Britain is home to the world’s five biggest projects.
From March CfD applicants across all technologies may secure higher prices she said, if they can prove cuts in carbon emissions negotiated with their suppliers.
Two years hence, Coutinho announced, CfD incentives will also seek to reflect how supply chains in wind, solar and hydro affect their sourcing communities.
Solar Energy UK head Chris Hewett was first among renewables leaders to welcome today’s intended boost.
“Solar remains the cheapest source of power in the UK, according to the Government’s own figures“, he noted, “although installation costs have been affected by factors outside the industry’s control, notably the war in Ukraine.
“So it is gratifying that that the maximum bid price has been raised by a significant amount, which should bolster growth further towards reaching the capacity target of 70GW by 2035,” said Hewett.
Outside the CfD process, developers may seek a route to market through corporate power purchase agreements PPAs or by operating as merchant plants. Those alternatives are risker, though potentially more lucrative.
For the wind industry, RenewableUK’s Chief Executive Dan McGrail said:
“Ensuring the UK continues to unlock investment in renewables is critical to improve energy security, drive economic growth, support thousands of new green jobs and enable us to continue to create a lowest cost electricity system for billpayers.
“With intense international competition for investment, RenewableUK welcomes the strong commitment to the sector shown by government today. It demonstrates the UK is intent on remaining a global leader in offshore wind, as well as innovative technologies like floating wind and tidal stream.
“The potential exists to attract record private investment in offshore wind projects next year, McGrail went on. “At least ten are likely to be eligible, able to reduce the UK’s need for gas by 39%.
“Even at these new prices, there is still no cheaper way to meet the UK’s rising electricity demand and increase our energy security”.