The UK government has confirmed the overall budget for the next contracts for difference (CfD) auction, with support worth £205m up for grabs.
The fifth allocation round (AR5) will open later this month, and marks the first time the process has been held annually since the scheme’s inception.
AR4 – branded by government as “the most successful ever” – secured nearly 11GW of capacity spanning offshore wind, solar, and saw the inclusion of floating offshore wind and tidal stream for the first time.
Arranged across two ‘pots’, AR5 sees an allocation of £170m to Pot 1 for established technologies, which will include offshore wind and remote island wind for the first time.
Separately, £35m has been allocated for Pot 2, which covers emerging technologies such as geothermal and floating offshore wind, as well as a £10m ring-fenced budget available for tidal stream technologies.
“The competitive nature of the Contracts for Difference scheme has already proven successful at placing downward pressure on prices since the first auction was held,” the Department for Energy Security and Net Zero said in a statement.
“This process, together with solar and wind now amongst the cheapest form or electricity generation in the UK, means the scheme will play an increasingly important role in helping to meet the Energy Security Secretary’s ambition for Britain’s wholesale electricity prices to be among the cheapest in Europe.”
Minister of State for Energy Security and Net Zero Graham Stuart said added: “Today’s budget announcement, the move to annual auctions and continued investment in renewable energy will limit the impact of events like Putin’s illegal war in Ukraine and drive our overriding priority for the UK to have amongst the cheapest wholesale electricity prices in Europe.
“I am excited to see the opportunities that will open for Britain’s world-class renewable industries as annual auctions kick off this year, enhancing the UK’s reputation as among the most attractive places to invest in for a secure, affordable and prosperous future.”
The CfD process has so far seen 52 projects in Scotland, or around 30% of all CfD projects and around 25% of total CfD capacity.
In Wales, It has awarded contracts to nine projects, totalling around 260MW of capacity.
While AR5 is still likely to see substantial interest, it will be held in a vastly different landscape to previous CfD procurement rounds.
Not only is energy security now the guiding principle in any discussion of new procurement, but skyrocketing prices, inflation and supply chain pressures are all likely to have a pronounced impact on the strategy – and ultimately the price – developers are willing to pay.
Analysts Cornwall Insight today noted that rising inflation and interest rates, supply chain problems, and labour shortages have increased the weighted average cost of capital for renewable projects by about 4% since early 2021.
“Developers are becoming increasingly concerned about bidding for projects in the next round of the government’s CfD renewables subsidy scheme, fearing they may not get a return on any investments they make,” it said in a note.
According to a presentation by BEIS last month, the AR5 application window is now set to open on 30 March, and will run until 24 April.
The process will then open for sealed bids sometime between June and August, with results expected in late summer or early autumn.