News
Onshore wind and solar being included in CfD (Contracts for Difference) for Allocation Round 4 (AR4)
This week there have been two announcements around the next CfD Auction for Allocation Round 4 (AR4). For the first time it looks likely that onshore wind (the renewable technology used in TECs groundbreaking PPA) and solar will be included. Further to this announcement BEIS released an open consultation on the inclusion, with views sought around portfolio splits and extending the delivery years out past 2026 up until the end of March in 2030. Further information is below.
Onshore wind and Solar being proposed for the next CfD Auction
Following the announcement on Monday that the government is proposing to allow onshore wind and solar into the next Contracts for Difference (CfD) auction, Energy UK interim Chief Executive Audrey Gallacher said: “We welcome greater support for onshore wind – one of the lowest-cost, low carbon technologies – which can now play a pivotal role in helping us reach our net zero target and deliver benefits for the environment, customers and the wider economy.” RenewableUK Chief Executive Hugh McNeal said: “The government is pressing ahead with action to meet our net zero emissions target quickly and at lowest cost to consumers and businesses.” Labour Shadow Energy and Climate Change Minister Alan Whitehead said: “After years of Labour calling on the government to remove its ban on funding onshore wind and solar, it has finally relented.”
BEIS is consulting on including onshore wind and solar in CfD AR4
On Monday this week BEIS released a consultation on the Contracts for Difference (CfD) scheme in which it set out plans to include onshore wind and solar PV generation in the “pot 1” established technologies for Allocation Round 4 (AR4). They are also seeking views on whether to maintain the current (technology) pot split – with the addition of floating offshore wind to “pot 2” less established technology and the removal of biomass conversions from pot 1 – or alternatively to create a separate “pot 3” for offshore wind (including floating offshore wind). They are also consulting on creating a separate definition for floating offshore wind, excluding further coal-to-biomass conversion and extending delivery years out to 31 March 2030 in order to run allocation rounds after the current end date of 2026. A number of contractual changes are also planned. The consultation runs until 22 May. BEIS
What is CfD (Contracts for Difference)?
Contracts for Difference
A Contract for Difference (CfD) is a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), a government-owned company. The Contracts for Difference (CfD) scheme is the government’s main mechanism for supporting low-carbon electricity generation.
CfDs incentivise investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with direct protection from volatile wholesale prices, and they protect consumers from paying increased support costs when electricity prices are high. Renewable generators located in the UK that meet the eligibility requirements can apply for a CfD by submitting what is a form of ‘sealed bid’. There have been 3 auctions, or allocation rounds, to date, which have seen a range of different renewable technologies competing directly against each other for a contract.
Successful developers of renewable projects enter into a private law contract with the Low Carbon Contracts Company (LCCC), a government-owned company. Developers are paid a flat (indexed) rate for the electricity they produce over a 15-year period; the difference between the ‘strike price’ (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the ‘reference price’ (a measure of the average market price for electricity in the GB market).
