Government to rollout CfD auctions annually to boost renewables deployment
The UK Government has announced that the funding auctions through the Contracts for Difference (CfD) scheme will occur annually, rather than every two years, in a bid to boost the nation's clean energy supply chain.
The announcement took place on Wednesday (9 February) with Business and Energy Secretary Kwasi Kwarteng claiming that the reform to the CfD scheme would “boost energy security, attract private investment and create jobs in our industrial heartlands”.
The CfD auctions have been critical in bringing down the costs of clean energy in the UK. Taking place every two years, CfD schemes have seen the per unit price of offshore wind fall by around 65% since the first auctions were held, which in turn has spurred the UK to become one of the leading markets for that technology.
Amidst the energy bill crisis, the Government will make these auctions annual from March 2023. The Government believes it will help fast-track renewables deployment in the UK by building a bigger and more efficient supply chain for a host of low-carbon sources.
Business and Energy Secretary Kwasi Kwarteng said:” We are hitting the accelerator on domestic electricity production to boost energy security, attract private investment and create jobs in our industrial heartlands.
“The more clean, cheap and secure power we generate at home, the less exposed we will be to expensive gas prices set by international markets.”
The fourth round of the UK Government’s CfD auction scheme, designed to increase investment in low-carbon energy, opened in December 2021, aiming to support 12GW of new generation capacity.
The latest round, which lasted one month, provides £285m of support annually to low-carbon energy generation, in what the Department for Business, Energy and Industrial Strategy (BEIS) is dubbing the largest package to date under the scheme. Projects allocated funding through this auction have the potential for nearly 6GW of clean energy capacity, which the Government claims is enough to power more than seven million homes.
The majority of the funding was made available for offshore wind. This is perhaps to be expected, given that the UK is striving to host 40GW of offshore wind by 2030. Offshore wind is, at present, the only renewable energy sub-sector with its own Sector Deal.
Onshore wind and solar have notably been excluded from the CfD process since 2015. The Government took the decision to include them again in 2020, in light of the net-zero target, supporting Strategy packages, and much campaigning from environmental and industry organisations.
Energy bill crisis
The announcement comes as the UK continues to battle rising household bills, as disinformation around the net-zero movement continues to grow.
Regulator Ofgem announced at the start of the month that the new energy price cap for average gas and electricity bills had increased, meaning that the average home will see dual-fuel bills rise above £1,900.
Ofgem reported a rise in the average price of gas per therm from 49p at the start of January 2021 to 112.5p at the end of November 2021. Within the same timeframe, electricity prices per megawatt-hour increased from 53p to 112.5p. Prices have continued to rise, with warnings that policy inaction could lead to increased prices through to the end of the decade.
While many realise this is predominantly a gas issue, some MPs have been lobbying for net-zero legislation to be weakened in a bid to lower costs., The Net-Zero Scrutiny Group (NZSC) called for a temporary end to the 5% VAT rate on energy bills and a suspension of the ECO levy, which raises money for Government schemes in the fields of renewable energy, household insulation and alleviating fuel poverty. These calls have been rubbished by green groups despite gaining traction within parts of the mainstream media.
It is hoped that the CfD announcement will alleviate concerns that policymakers were listening to these calls. The UK Government hopes to leverage £90bn on investment into clean energy by 2030 and last week unveiled a £9.1bn support package for households with rising energy bills.
Commenting on the announcement Dan McGrail, chief executive of RenewableUK said: “Moving to annual CfD auctions is a major step forward which will significantly accelerate the speed of our nation’s transition to net zero. It’s good news for consumers too, as it means the UK will be reducing its vulnerability to volatile international gas prices and increasing the volumes of low-cost renewable energy in our energy system.
“There’s a huge appetite among renewable energy developers to invest in building more projects, which will help to grow the UK supply chain at a faster rate. This will enable us to maximise the economic benefits which this sector offers to everyone, especially in parts of the country which urgently need levelling up. We need build up to 4GW of new offshore wind capacity every year to stay on track for net-zero, which means quadrupling our current annual rate. Similar increases in onshore wind, solar and other clean power sources are vital too, as well as ramping up the roll-out of innovative technologies like floating wind, green hydrogen and marine power.”
Frank Gordon, Director of Policy at the Association for Renewable Energy and Clean Technology (REA), said: “The REA welcomes the move to annual CfD auctions as confirmed by BEIS today. We and others have called for more frequent auctions for a number of years, most recently in response to the energy bills crisis. More power will be needed as sectors decarbonise, and moving to renewable, domestic energy supplies is ultimately the only way to prevent us being exposed to volatile international fossil fuel prices that drive bill increases, while enabling Net Zero.”
Dr Simon Cran-McGreehin, Head of Analysis at the Energy and Climate Intelligence Unit (ECIU) said: “Whilst gas producers have been profiting from rocketing gas and power prices, renewables under the ‘contracts for difference’ scheme have been paying back and cutting bills – to the tune of £35 a year from this April.
“Doubling down on investment in homegrown renewables will provide ongoing savings and cushion households from a future gas crisis. More frequent, annual auctions under the Net Zero target will provide a steady stream of opportunity to British renewables projects supporting jobs in levelling up areas.”
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