Given the magnitude of other news that was being delivered from across the pond that same day, you would be forgiven if it passed you by that the Department for Business, Energy and Industrial Strategy (BEIS) had delivered a few announcements of its own, including the publication of its Budget Notice for the next CFD auction round opening in April 2017. Amidst the potential blow that the election result dealt to renewables targets internationally, there were some positive messages to be taken for the UK renewable sector in the news on 9 November.

We have now had confirmation from the UK government that there is a budget of £290 million on offer both for delivery year 2021/2022 and for delivery year 2022/2023. The auction will be for Pot 2 (less established technologies) which includes Offshore wind, Advanced Conversion Technologies (with or without CHP), Anaerobic Digestion (with or without CHP), Dedicated Biomass (with CHP), Wave, Tidal Stream and Geothermal. The announcement has been celebrated in the industry as demonstrating that the Government (at least currently) still seems to be showing some support for offshore wind. The administrative strike prices for the round have been published (see below), acting as a cap to the prices to be submitted by developers; previous rounds have shown that most established technologies have been clearing well below the published strike price.

The announcement coincided with some other, more optimistic, news for renewables, namely Vattenfall's announcement that it won the auction to build the 600MW Kreigers Flak in the Baltic Sea (by the end of 2021) with a staggeringly low bid of euro 50/MWh. This will certainly lead to questions within the UK industry as to whether or how this price can be replicated in the 2017 CFD allocation round, which is due for delivery around the same time. As funds will be allocated to the cheapest projects first, the auctions are by nature extremely competitive. It is a delicate balance for a developer to compete economically – to not only have a chance at winning a CFD - but also to be able to deliver the project for the price given. We have already witnessed CFDs being handed back by solar projects which have bid in at a rate too low to be financially viable, in order to try to secure themselves a CFD.

As can be seen in the table below, no strike price has been determined for geothermal technologies. Further information is being sought to improve the evidence base for a geothermal strike price via a call for evidence on how these technologies will work in the context of CFD, and whether any detailed policy proposals are needed. The 'Call for Evidence on fuelled and geothermal technologies in the Contracts for Difference scheme' consultation is open until 20 December 2016. There will be no minima strike price for Wave and Tidal technologies (as had been given previously under the RO/in CFD rounds) though both technologies are still eligible to compete.

The final budget notice will not be announced until 10 working days before the commencement of the Allocation Round and BEIS has warned that the budget may be altered due to changes in underlying assumptions, such as fossil fuel prices. However, the budget will be confirmed within an overall context of a clear and consistent drop in the cost of renewable energy projects (particularly established technologies). As we can see, the strike price for offshore wind has been set at a figure that is 25% lower than was set for the past auction, showing just how quickly advances are being made in industry to bring the cost of the technology down.

A final piece of news worth mentioning is the 'BEIS Electricity Generation Cost Report' which was also released early on 9 November. This report produces levelised cost estimates for generation projects commissioning in the years 2020 and 2025; for the first time the Government's own research shows that by 2020, and undeniably by 2025, onshore wind and large scale solar PV will unequivocally be the cheapest projects to build across the lifetime of the project - even beating combined cycle gas turbines. Given the current political unwillingness to support these two technologies, it will be interesting to see how long current policy positions can be maintained when, based on this report, they don't encourage value for the consumer.

Technology

2021/2022

2022/2023

Offshore Wind

105

100

Advanced Conversion Technologies(with or without CHP)

125

115

Anaerobic Digestion (with or without CHP) (>5MW)

140

135

Dedicated Biomass

115

115

Wave

310

300

Tidal Stream

300

295

Geothermal

-

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