UPDATED 1 Sept: The EI library in London is temporarily closed to the public, as a precautionary measure in light of the ongoing COVID-19 situation. The Knowledge Service will still be answering email queries via email , or via live chats during working hours (09:15-17:00 GMT). Our e-library is always open for members here: eLibrary , for full-text access to over 200 e-books and millions of articles. Thank you for your patience.
New Energy World™
New Energy World™ embraces the whole energy industry as it connects and converges to address the decarbonisation challenge. It covers progress being made across the industry, from the dynamics under way to reduce emissions in oil and gas, through improvements to the efficiency of energy conversion and use, to cutting-edge initiatives in renewable and low-carbon technologies.
UK government considers reform of flagship CfD scheme to unlock the wider benefits of renewables
26/4/2023
News
The UK government is exploring a major reform of its flagship Contracts for Difference (CfD) scheme in a bid to improve energy security and drive investment in renewables projects in England, Scotland and Wales.
The CfD scheme is the UK government’s mechanism supporting new low-carbon electricity generation projects, such as offshore wind and solar. It has so far awarded contracts to projects totalling 26.1 GW of low-carbon capacity.
The scheme is designed to deliver low-carbon deployment at low cost to consumers – so that when wholesale electricity prices are higher than the price agreed in the CfD, generators pay back the difference. This revenue will be passed on to energy suppliers and, over time, translates to lower bills for consumers.
Indeed, the CfD scheme has successfully led to downward pressure on prices since the first auction was held in 2015, with the per unit MWh price of offshore wind dropping by almost 70% to £37.35/MWh by the latest 2022 auction.
The government is now seeking evidence and views about reviewing applications not just on their ability to deliver low-cost renewable energy deployment, but also based on how much a renewable energy project contributes to the wider health of the renewable energy industry. These ‘non-price factors’ could include supply chain sustainability, address skills gaps, innovation and enabling system and grid flexibility and operability; which could help drive investment in the sector, grow the economy and boost the country’s energy security, it says.
The government is exploring introducing non-price factors into the CfD auction allocation process following recommendations made in Chris Skidmore’s net zero review and the report earlier this month from the Offshore Wind Champion Tim Pick.
Pick welcomed the government’s latest Call for Evidence, saying: ‘As noted in my recent report, price-only CfD auctions have created a strong driver for innovation to drive down costs, but there is a need in the current climate to consider how to better develop new supply chains and associated jobs.’
He continued: ‘The current global context arguably provides the justification for considering a more nuanced approach as part of a wider package of measures, especially as we seek to seize a first-mover advantage in the deployment of floating offshore wind technology at scale.’
In response to the announcement, Ana Musat, RenewableUK’s Executive Director of Policy, noted that designing the right framework for CfD would be ‘absolutely crucial’ to attract private investment. She emphasised that awarding CfDs ‘shouldn’t just be based on a race to the bottom on prices’, but should ‘also take account of the wider economic and environmental benefits which this industry can deliver’ with the adoption of a ‘sustainable approach on prices to support long-term industrial growth, innovation and supply chain development’.
