The second round of Contracts for Difference (“CfD”) allocations were announced by the Department of Business, Energy and Industrial Strategy (“BEIS”) this morning, Monday 11 September 2017 (“AR2”), for Advanced Conversion Technology (“ACT”), dedicated biomass and offshore wind – the so-called “less established technologies”.
11 CfDs have been awarded, the largest for the three offshore wind projects: Triton Knoll (860MW), Hornsea Project 2 (1,386MW) and Moray East (950MW). Together, these offshore wind farms total 3.2 GW of capacity, 96% of the total capacity for this CfD round. The CfD strike prices achieved are £74.75 for delivery year 2021/22 for all technologies. For delivery year 2022/23 they are £57.50/MWh for offshore wind and £40.00/MWh for ACT.
These prices are significantly below those seen in the last allocation round and below those predicted in industry speculations in the run-up to AR2. As a comparison, in 2014, Neart na Gaoithe offshore project won a CfD in Allocation Round 1 with a strike price of £114.38/MWh, and East Anglia One with a strike price of £119.89/MWh.
Bids for CfDs were received for 10 times the value of the final contracts awarded, indicating the highly competitive nature of the process. Today’s announcement takes offshore wind one step closer to grid parity, as improvements in technology, supply chains and cost of capital make the technology less reliant on support mechanisms. While the budget for CfDs has reduced from £315.25m to £176.18m from Allocation Round 1 to Allocation Round 2, the capacity supported has increased from 2.1 GW to 3.3 GW.
While some “less established” technologies have benefited from today’s announcement, others have missed out. Notable by their absence are tidal and geothermal projects, raising further questions over their development in the UK.
The successful companies will now be able to enter into the CfDs, which will require them to satisfy certain conditions precedent within 10 business days of signature. By the Milestone Delivery Date (one year on from the signing of the CfD), the beneficiary must have attained the relevant stages of delivery, including meeting certain financial obligations, or risk having the CfD terminated.
While the individual beneficiaries have received a welcome degree of certainty from AR2, the eyes of the renewables industry as a whole now turn to the government’s upcoming Clean Growth Plan, which, it is hoped, will provide greater clarity for the role of renewables in the UK as a whole in the years to come.