UK renewables CfD consultation sets out significant changes for industry

Ronan Lambe, renewable energy expert, and Imogen Dewar, planning law expert, at Pinsent Masons were commenting as the consultation seeks input from stakeholders and the general public on a range of potential changes designed to support the country’s transition to a low-carbon energy system.

The CfD scheme is the UK government’s primary mechanism for supporting new low-carbon electricity generation projects. It provides developers with a stable revenue stream by guaranteeing a fixed price for the electricity they produce, thereby reducing the financial risks associated with renewable energy investments.

The consultation document outlines several important proposals for AR7 including relaxation of eligibility criteria for offshore wind projects, enhanced budget visibility, extended CfD contract terms and the implementation of agreed policy changes.

One of the most notable changes is the proposed relaxation of CfD eligibility criteria for fixed-bottom wind projects. Under the proposed new rules, projects that have not yet obtained full planning consents would be allowed to participate in near-term allocation rounds. This change aims to accelerate the development of offshore wind projects, which are crucial to the UK’s renewable energy ambitions. The consultation identifies the primary drivers for this change as twofold: improved competition and better value for consumers; and enabling projects to deliver more quickly.

Lambe said: “The implications of the potential change to eligibility for fixed bottom wind projects are significant. Given the lengthy timeframes associated with consents for such projects, it is perhaps not surprising that the government is considering relaxing the eligibility requirements for this critical allocation round, in which almost 27 gigawatts  of capacity would be eligible to participate if this change was introduced There is obviously a heightened risk of non-delivery with unconsented projects and as the government notes, a risk of unconsented projects including a ‘risk premium’ in their bids, reflecting their earlier stage application. While these risks will need to be borne in mind when evaluating the success, or otherwise, of this allocation round, given the ‘once in a generation’ criticality which AR7 has to achievement of various offshore wind and wider clean power and net zero targets, the government clearly feels that they are risks which are worth taking. They will not, however, be universally popular amongst the offshore wind development community.”

Dewar said: “The changes for these fixed-bottom infrastructure projects seem to contribute to the Labour government’s commitment to achieve its 2030 low carbon energy goals. Now, only five years out from hitting that deadline, it is clear that the government is seeking new and innovative ways to eliminate perceived delays in getting spades in the ground on clear power projects. It remains to be seen how projects will react to this change. One question is whether this proposed reform gives the confidence needed by the developer for an unconsented project to seek to apply for a CfD. It will be important to understand any implications of this proposed reform on the CfD markets for both fixed bottom wind and the emerging technologies.”

The government is also considering changes to the information used by the Secretary of State to inform the final budget for fixed bottom offshore wind projects. This includes greater flexibility over sealed bid information, with aims of providing more transparency and helping ensure that the budget is allocated more effectively.

“Changing the way in which budgets are set from the status quo whereby a budget is announced at the outset of the allocation round to setting a capacity ambition and finalising budget only when actual bid prices are known seems like a good way of ensuring that the government can really put its money where its mouth is in supporting the greatest possible proportion of projects in AR7,” said Lambe.

Another significant proposal is the extension of the current 15-year CfD term. The government is exploring the merits of increasing the contract duration to provide longer market certainty once contracts are awarded, with hopes of reducing overall project costs and creating a more predictable stream of revenue over a longer period of time. The consultation also includes proposals for implementing previously agreed policy changes and routine updates to the CfD scheme. For instance, increasing the target commissioning window for technologies other than offshore wind, such as solar panels, from three to six months.

In addition, as several of the UK’s first onshore wind projects near the end of their economic life and their owners are considering repowering, “it is helpful that the government is seeking to make CfD support for repowering available in a clear and straightforward fashion”, said Lambe. While repowered onshore wind will likely capture a relatively small proportion of AR7 capacity, this will become an increasingly significant use of CfD budget in upcoming allocation rounds.