Government hits the accelerator on low-cost renewable energy
- the deployment of low-cost renewable electricity will be accelerated through the government’s flagship auction program
- the next round of contracts for difference (CfD) will open in March 2023 and will be the first in a series of annual auctions
- CfD supports new low-carbon electricity projects by awarding contracts through a competitive auction process, supporting household energy production
The deployment of low-cost renewables in the UK will be accelerated as the government steps up auctions for its flagship renewables scheme to boost investment and jobs.
Today’s announcement (Wednesday 9 February) will see the frequency of auctions for funding through Contracts for Difference (cfd) change of regime every year rather than every 2 years. This will support producers of renewable electricity and boost the UK’s renewable energy infrastructure. The change takes effect from March 2023 when the next cfd round opens.
CfDs are the government’s main method of supporting renewable energy, reducing the cost of technologies and playing an important role in mobilizing £90bn of private investment by 2030.
The auction program has already proven effective in driving down the unit price of offshore wind by around 65% since the first auctions were held, helping the UK to become one of the largest producers of wind energy in the world.
During the last allocation cycle, new contracts were awarded, with the potential for nearly 6 GW of additional capacity. This is enough to power more than 7 million homes at record prices and could create thousands of jobs across the UK. Increasing the frequency of auctions will also give more projects the opportunity to enter the system, helping to increase the UK’s renewable energy supply and supporting the country’s long-term energy security.
Business and Energy Secretary Kwasi Kwarteng said:
We are accelerating national electricity production to strengthen energy security, attract private investment and create jobs in our industrial heartlands.
The more clean, cheap and safe electricity we produce at home, the less we will be exposed to the high gas prices set by international markets.
Energy Minister Greg Hands said:
The UK is already the world leader in renewable energy and today’s announcement will take us even further. This will help provide cheaper energy to consumers, ensuring that more of our energy is produced at home and reducing our dependence on fossil fuels.
Today’s announcement follows major government announcements to support the UK nuclear sector: this includes up to £1.7bn to enable a final investment decision on a large-scale nuclear project scale in this Parliament the Nuclear Energy (Funding) Bill, a Nuclear Enabling Fund £120m Nuclear Enabling Fund Bill and a £210m grant to a consortium led by Rolls-Royce to develop a small modular reactor design in the UK.
The offers under cfd which are cost-effective and offer taxpayers value for money succeed, drive efficiency and secure new renewable energy generation capacity here in the UK.
In the last allocation round, 12 new contracts were awarded, with the potential for almost 6 GW of additional capacity. This is enough to power more than 7 million homes at record prices and could create thousands of jobs across the UK.
Dan McGrail, managing director of RenewableUK, said:
Switch to annual cfd auctions is a major step forward that will dramatically accelerate the speed of our country’s transition to net zero. It is also good news for consumers, as it means the UK will reduce its vulnerability to international gas price volatility and increase the volumes of low-cost renewable energy in our energy system. There is a huge appetite amongst renewable energy developers to invest in building more projects which will help to develop the UK supply chain at a faster pace. This will allow us to maximize the economic benefits that this sector offers to all, especially in areas of the country that are in dire need of upgrading.
We need to build up to 4 GW of new offshore wind capacity every year to stay on track to net zero, which means quadrupling our current annual rate. Similar increases in onshore wind, solar and other clean energy sources are also essential, along with accelerating the deployment of innovative technologies such as floating wind, green hydrogen and ocean energy. .
Morag Watson, Policy Director at Scottish Renewables, said:
By 2050, the demand for electricity will have almost doubled, and the vast majority of this electricity must come from renewable sources if we are to reach net zero.
The contracts for difference mechanism plays a central role in facilitating this, and increasing the frequency of auctions is essential if we are to tackle climate change. Today’s announcement is therefore welcome, and we are pleased to see the government responding to industry’s calls for this to happen.
In the Net Zero strategy, the government has committed to accelerate the deployment of low-cost, low-carbon electricity generation by revising the frequency of cfd auctions.
Increases cfd The round frequency underscores the government’s commitment to accelerating low-carbon electricity generation to achieve a fully decarbonized electricity system by 2035.
This follows the government’s announcement last week of a £9.1billion support package to help households cope with rising energy bills. This includes a £200 cut on household energy bills this autumn for domestic electricity customers in Britain, which will be repaid automatically over the next 5 years.
There will also be a non-refundable £150 rebate on council tax bills for all households in Bands A to D in England and £144 million of discretionary funding for local authorities to support households who have need help but who are not eligible for the council tax rebate. .
These new measures come on top of the existing £12billion support the government is providing for the cost of living this financial year and next. This includes reducing the Universal Credit sliding scale, increasing the National Living Wage, freezing taxes on alcohol and fuel, and providing targeted assistance with energy bills.
Notes to Editors
Contracts for difference (cfd) is the government’s primary mechanism for supporting new low-carbon electricity generation projects. CfDs are 15-year private law contracts between electricity producers and the Low Carbon Contracts Company (LCCC), a public company that manages CfDs at arm’s length from the government.
Contracts are awarded through a competitive auction; the lowest bids are chosen, which promotes efficiency and cost reduction and is the cheapest way to obtain new renewable energy production capacity. These auctions take place in cfd allocation rounds held approximately every 2 years since their start in 2014.
BEIS has reviewed the frequency of cfd award rounds, gathering industry insights. There was overwhelming support for more frequent and increased certainty on the timing of allocation cycles.
The increased frequency of auctions should benefit developers and the supply chain, while further helping the UK meet its net zero electricity and renewable electricity targets.
So far, Contracts for Difference has supported approximately 16 GW of new low-carbon electricity capacity, including 13 GW of offshore wind. That’s enough to power more than 15 million homes.
The share of coal-free electricity generation for the whole of 2020 increased by 41.9% (5,202 hours) compared to 2019 (3,665 hours).
A draft budget of £285m has been set for the fourth cfd round table, including £10 million for pot 1, £75 million for pot 2 and £200 million for offshore wind (pot 3). Meeting our goal of decarbonizing the electricity system by 2035 will require a sustained increase in the deployment of locally supported onshore wind and solar in the 2020s and beyond. Include them in 2023 and the future cfd allocation cycles will support progress towards our low-cost decarbonization goals.