Global menu

Our global pages

Close

UK: Contracts for Difference consultation response

  • United Kingdom
  • Energy and infrastructure - Clean energy

25-11-2020

On 24th November 2020, the UK Government published its much anticipated response to its consultation on proposed changes to the Contracts for Difference (CfD) scheme ahead of the fourth allocation round (AR4), which is scheduled to take place in late 2021 and which will aim to support up to double the capacity supported in Allocation Round 3.

Simon Davies Comments: “The consultation response represents largely good news for UK renewables and is consistent with the UK net-zero commitment and recent policy announcements. In particular, we welcome the policy intent to double the capacity awarded under the next auction and the decision to re-integrate onshore wind and solar PV into AR4. Uncertainty remains around the allocation of capacity/budget between the different pots and which technologies will be supported beyond AR4. The new negative pricing rule should be noted given that it is likely that negative prices will become more common over the next decade. It will be interesting to see if this change has any tangible impact on strike prices.”

Set out below is a non-exhaustive list of the proposals which are being taken forward by the Government.

Three Pot Structure

BEIS stated in the initial consultation that AR4 will include auctions for both Pot 1 “established” technologies (i.e. onshore wind (>5MW) and solar photovoltaic (PV) (>5MW)) and Pot 2 “less-established” technologies. The Government will also introduce a new, separate, third pot for offshore wind (which was formerly in Pot 2), which means that offshore wind projects will not be competing with any other technologies.

Floating Offshore Wind

The Government recently announced an ambition to deliver 1GW of floating offshore wind by 2030, as part of the wider ambition of reaching 40GW of offshore wind by 2030. It is therefore of no surprise that the Government is implementing the proposal to define floating offshore wind projects as a distinct technology within the CfD (with a different administrative strike price) from conventional, fixed bottom offshore wind. The minimum water depth criterion to fall within the definition of floating offshore wind has been reduced from 60 metres to 45 metres. Floating offshore wind projects will be incorporated into Pot 2 and as such will compete with other non-established technologies.

Extension of Delivery Years

The proposal to amend the definition of “delivery years” in existing legislation has been extended to 31st March 2035 (in the original consultation this was proposed at 31st March 2030). This gives the Government the flexibility to run future rounds with delivery years out to 2034/35, although no further decisions have been taken on the potential timing of future rounds (beyond the stated ambition to hold rounds every two years).

Community Support for Onshore Wind and Renewable Register in England

The Government plans to update the existing community benefits and engagement guidance for onshore wind to reflect current context, e.g. the Government’s commitment to reach net zero carbon emissions by 2050. Consideration was given to expanding this guidance to other technologies but this was not taken forward by the Government. The updated guidance is intended to be published by Summer 2021. The Government is still considering the proposal to create a register of renewable energy developments in England.

Supply Chain Plan Policy

The Government intends to implement its proposal to develop criteria based on the aims and objectives of the Industry Strategy’s five foundations and strengthen the Supply Chain Plan. More detailed proposals are contained in a new, separate consultation that is published alongside the response and available here.

Negative Pricing

The Government plans to implement its proposal to extend the negative pricing rule for future CfD contracts, which means that CfD generators will not get paid difference during any negative pricing periods. The previous negative pricing rule meant that six consecutive hours of negative pricing were required before payments were stopped.

Flexible Capacity Caps and/or maxima and minimum thresholds

The Government intends to implement the proposal which asked whether capacity caps and maxima and/or minima could apply as ‘soft constraints, e.g. by awarding a contract to a project that breaches the capacity cap, if enough monetary budget remains. Details of this will be set out in the Allocation Framework of each round (but note that it has not been decided whether flexibility will be exercised in AR4).

Non-Delivery Disincentive (NDD)

In line with the initial proposal, the Government will extended the NDD exclusion period to ensure that excluded sites are not able to enter the next allocation round for which they are currently able to apply. However, the Government does not intend to introduce bid bonds for the next allocation round.