Earlier this month we found out the results from the latest Contracts for difference (CfD) auction for renewable energy projects. This is the fourth time an allocation round (AR4) has been held. For a brief refresher on the what, why and how of CfD auctions, please read this blog post by Rebecca Williams.
93 renewable energy projects were successful in the auction, representing enough capacity to power 12.5 million homes and helping to boost British energy security and independence. These new projects will save consumers £58 a year compared to the cost of power from gas.
The 93 projects account for almost 11GW of capacity across a range of technologies, with wind energy projects representing 79% of this capacity. A further 16,000 new jobs will be created in wind energy alone as a result of this month’s auction.
Fixed Bottom Offshore Wind
Nearly 7GW of fixed bottom offshore wind was awarded contracts and When it comes online the total installed capacity of offshore wind will stand at nearly 28GW by 2027 at the latest. The price of offshore wind continued to fall from previous rounds, achieving a strike price of £37.35 MW/h (in 2012 prices). This is a 69% decrease from the price seen in the first allocation round back in 2015, while the average size of projects has increased by about 140% from the first allocation round. This highlights the success and effectiveness of the CfD mechanism in reducing the cost of renewable energy and helping the industry to achieve economies of scale which can be seen in full effect in the graph below. In the graph, the size of each circle represents the size of the project in terms of MW capacity, the colours represent each allocation round and each dotted line intersects the centre of the circle at the lowest strike price awarded to the projects in each allocation round.
Two of the projects are in Scottish waters, Inch Cape & Moray West. The 3 remaining projects, East Anglia 3, Hornsea Project 3 & Norfolk Boreas are situated along the east coast of England.
Onshore Wind
Onshore wind accounts for 1.5GW of the capacity awarded from the auction, with nearly 600 MW being remote island onshore wind projects. The price of mainland onshore wind has fallen nearly 50% since the first allocation round, which was also the last time in was allowed to compete in the auction. All the awarded capacity is in Scotland and is estimated to create over 2,600 jobs. The current planning regime in England makes it very difficult for onshore wind projects to win approval, even though the overwhelming majority of people consistently support this low-cost technology. RenewableUK is calling for projects to be allowed to go ahead where they have majority support. As part of the Government’s Energy Security Strategy unveiled in April, Ministers will hold a public consultation on developing partnerships with local communities who want to host onshore wind farms and benefit from lower electricity bills, potentially unlocking new capacity in England.
Emerging technologies
Tidal Stream
For the first time in the allocation process, tidal stream projects were successful with 4 projects winning contracts. Tidal energy has the potential to be a very reliable mainstream source of generation at scale, given the clockwork predictability of the tides. 3 projects are in Scotland and 1 in Wales, with a price of £178.54 MW/h. They will come online in 2025 at the earliest. Orbital Marine expects around 150 jobs to be created through the manufacture and installation phase alone for its 2 projects.
Floating Offshore Wind
32 MW of floating offshore wind was secured at a strike price of £87.30 MW/h, a saving of 28% on the administrative strike price set for this technology in this round. The winning project, TwinHub, will begin generating electricity off the coast of Cornwall as early as 2026. The recent announcements from Crown Estate Scotland on the enormous ScotWind leasing round, and The Crown Estate’s Celtic Sea announcement demonstrated the major role floating offshore wind will play in our energy portfolio. The expectation is that floating wind will follow a similar trajectory to fixed foundation offshore wind in forthcoming allocation rounds.
The Future
Unlike this allocation round, we don’t have to wait long for the next one. The government has decided to hold allocation rounds annually rather than every two years, with the AR5 slated for March 2023. This move has been welcomed by industry and will greatly assist in reaching our target of 50GW of offshore wind by 2030. The British CfD is the gold standard in renewable support schemes and has remained so by continually evolving, addressing possible shortcomings, and implementing improvements round after round. Future CfD reforms should look at ways to enhance investment in resilience and sustainable supply chains on the march towards net-zero. Exactly what form this evolution of the CfD mechanism should take, in order to focus on building up the UK’s offshore wind supply chain, will be a key issue for RenewableUK in our ongoing discussions with Ministers, as we are determined to secure even greater industrial benefits from this technology in the years ahead.