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ISSN 2753-7757 (Online)

UK’s biggest ever renewables auction secures record amount of low carbon energy

13/7/2022

Floating offshore wind turbine Photo: Principle Power
Floating offshore wind was included for the first time ever, in the latest UK CfD auction

Photo: Principle Power

A record amount of renewable energy generating capacity – almost 11 GW, potentially enough to power 12mn homes – was secured through the UK’s recent fourth round of the Contracts for Difference (CfD) scheme.

Nearly double the capacity achieved in the previous round, the energy was secured across a range of clean technologies, including offshore wind, solar, onshore wind, and – for the first time ever – floating offshore wind and tidal stream.

 

CfDs give certainty to project developers to invest in new renewable energy infrastructure by protecting them from volatile wholesale prices. When wholesale electricity prices are high, as they have been in recent months, generators pay money back into the scheme to reduce the net costs to consumers.

 

The greatest capacity, almost 7 GW, was secured from new offshore wind projects – enough to increase the country’s overall capacity built and under construction by 35%, and taking a significant step towards meeting the government target of 50 GW of offshore wind by 2030.

 

The competitive nature of the scheme has continued to place downward pressure on prices. The £37.35/MWh price of offshore wind secured in this round was almost 70% less than that secured in the first allocation round, in 2015, and significantly cheaper than the current cost of electricity, which has been trading at over £150/MWh for much of this year, according to Renewable UK.

 

Onshore wind and solar energy were both included in the CfD auction for the first time since 2015. Onshore wind secured almost 0.9 GW of new capacity, reportedly clearing at a strike price of £42.47 (more than 45% lower than in 2015), while solar secured more than 2.2 GW.

 

The fourth round also saw tidal stream and floating offshore wind projects successful for the first time. Tidal stream returned a capacity of 41 MW and floating offshore wind 32 MW.

 

According to RenewablesUK, the projects – which represent 14% of the UK’s total current electricity capacity – will save consumers £58/y compared to the cost of power from gas, and reduce the country’s reliance on expensive imported energy. Meanwhile, analysis by the Energy and Climate Intelligence Unit (ECIU) was more bullish, estimating a saving of over £100 per home.

 

RenewableUK’s Deputy Chief Executive Melanie Onn, commented: ‘Today’s record-breaking auction results show that there is a way to replace unaffordable gas with low-cost clean power generated by a wide range of renewable technologies led by wind, both offshore and onshore… We need to replicate the success of this auction in every subsequent annual allocation round to attract the £175bn of private investment in wind needed to achieve the government’s 2030 targets.’

 

It will take time for these new CfD-winning projects to be built and commissioned, but Onn added that: ‘Thanks to the rapid construction times of new inshore wind and solar sites, bill payers will start to feel the benefits of today’s auction next year.’

 

Looking ahead, Claire Mack, Chief Executive of Scottish Renewables, added a note of caution around local sourcing and supply chain issues: ‘If we want to see a successful UK supply chain competing with the rest of the world to help build UK offshore wind farms, developers of those projects must have more financial leeway to invest locally. The CfD should therefore move away from focusing exclusively on procuring the cheapest electricity possible and instead aim to ensure that renewable energy projects deliver economic benefits to the UK throughout their entire value chain.’

 

She added: ‘The low cost of technologies like offshore wind also mean that the imposition of caps on the amount of capacity which is able to be delivered by each auction is outdated. In the main, renewables now pay money back to the Treasury over the life of a CfD, and it is common sense to now remove these caps from coming auction rounds.’

 

Plans to bolster UK energy security set to become law
Meanwhile, the UK government’s Energy Security Bill, announced as part of the Queen’s Speech, was introduced into Parliament last week. It puts into law measures to boost long-term energy independence, security and prosperity included in the British Energy Security Strategy announced earlier this year.

 

Some 26 measures are to be introduced – including those to support the deployment of low carbon technologies at scale such as carbon, capture, use and storage (CCUS) and hydrogen – that the government claims will drive some £100bn of private investment by 2030 by ‘giving businesses the certainty they need’.

 

Other measures aim to encourage the deployment of heat networks and drive down the cost of electric heat pumps.

 

New powers will enable the extension of the energy price cap beyond 2023, shielding millions of customers from being overcharged. In further efforts to protect consumers, for the first time Ofgem will be appointed to oversee regulation of the heat networks market to ‘ensure consumers are charged a fair price’.

 

Consumers will also be protected from increasing network prices in the event of energy network company mergers by enabling the Competition and Markets Authority (CMA) to review relevant mergers under the new Energy Network Special Merger Regime.

 

The Bill also gives the Secretary of State powers to pre-emptively prevent potential disruption – such as ‘from industrial action’ or ‘malicious protest’ – to the downstream oil sector, and requires the industry to ‘take measures to improve its own resilience’.

 

Commenting on the Bill, Energy Institute CEO Nick Wayth CEng FEI, says: ‘Like the Energy Security Strategy before it, the bulk of the measures in the Bill focus on the supply side, representing progress on a whole range of fronts that are important to the UK’s energy transition and resilience. And it’s to be hoped it can progress through Parliament despite current political instability. The extension of the price cap is intended to protect consumers from spiralling bills, but conspicuously absent is anything bold and new to help with the stalled task of making Britain’s homes more energy efficient, which would help with cost, carbon and security simultaneously and permanently.’

 

New UK Electricity Networks Commissioner
In other UK energy related news, Nick Winser CBE FEI has been appointed as the UK’s first Electricity Networks Commissioner. Winser’s new role will help ensure the right infrastructure is in place as the UK accelerates the domestic supply of affordable electricity from low carbon technologies such as offshore wind and nuclear. Among his responsibilities, he has been tasked with dramatically reducing timelines for delivering onshore transmission network infrastructure by around three years and developing recommendations to help halve the end-to-end project process by the mid-2020s. 

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