‘Genuinely bewildering’: BEIS to allocate £60m for next CfD auction

The Department of Business, Energy and Industrial Strategy (BEIS) is set to finalise a draft allocation of £60m for the next Contract for Difference (CfD) auction, raising questions as to how the remaining £497m set aside for future auctions will be spent.

BEIS has today (20 November) issued its CfD Draft Allocation notice, allocating a £60m budget for “less-established” Pot 2 technologies, for the delivery years 2023-24 and 2024-25.

Earlier this year it was revealed that offshore wind and, for the first time, remote island wind providers would eligible to bid for contracts at the next CfD auctions, which will take place in May 2019 and then every following two years. The UK Government has set aside £557m for these auctions and, depending on prices, could deliver up to 2GW of additional wind capacity each year in the 2020s.

However, it appears that BEIS is set to impose a capacity cap of 6GW for the third CfD allocation round, with strike prices set below the record levels set in the previous auction. An administrative strike price for offshore wind has been set at £53-56/MWh, while the newly added remote island onshore wind technologies will have a strike price of £82/MWh for both delivery years.

A BEIS Spokesperson said: “We are world leaders in renewable technology, including benefitting from the largest offshore windfarm in the world, and cutting emissions per person faster than any other G7 country since 1990 and producing record levels of low carbon energy.

“We have announced a budget of £60m for the next clean electricity auction – the fall in costs of renewable electricity means that we should be able to secure more generation than the last auction at a lower cost for consumers.”

Developers, green groups and politicians had welcomed previous results from the UK Government’s 2017 CfD auction, which has seen the cost of offshore wind halve over the last two years to set a record low-strike price of £57.50 per MWh.

However, the publication of the draft allocation has been seen by some green groups as a missed opportunity to lower offshore costs even further.

Greenpeace UK’s head of energy, Kate Blagojevic, said: “This is a genuinely bewildering move by the government that misses the opportunity to drive down offshore wind costs as fast as possible.

“They promised over half a billion pounds in investment, that was widely expected to be divvied up and made available in sizeable chunks over the next few years. But this first chunk is a pitiful sum that could end up limiting UK export potential and jeopardising our climate goals.”

Project pipeline

The UK Government expects the offshore wind sector to invest £17.5bn in the UK up to 2021, creating thousands of new jobs in the process.

Project deployment has been aided by the record-low strike prices. Results published by BEIS show that 11 energy projects worth £176m annually were awarded contracts in the 2017 auction. Three offshore projects, the 1.4GW Hornsea Project Two, the 860MW Triton Knoll farm and 0.95GW Moray Offshore Windfarm (East), representing 3.2GW of new capacity, were awarded contracts.

More than 20 projects are in the planning process or awaiting permission, leaving some to question why the allocation budget hasn’t acquired more of the £557m fund set aside for these technologies.

However, the Energy and Climate Intelligence Unit’s (ECIU’s) head of analysis, Dr Jonathan Marshall claims that the smaller budget could represent the plummeting costs of offshore wind.

“While slashing the size of the pot available for new renewable capacity may cause concern at first glance, what it really shows is the extent to which the cost of offshore wind has plummeted,” Marshall said. “We can expect this auction to be highly competitive, with only the most attractive projects bagging contracts.

“However, limiting funds will likely dissuade some developers who may find that their projects will take longer to come to market than they originally envisaged.”

Matt Mace

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