Referral of the proposed subsidy scheme, the Contracts for Difference for Renewables (as at Allocation Round 6), by the Department for Energy Security and Net Zero

The Subsidy Advice Unit (SAU) has published a report providing advice to the Department for Energy Security and Net Zero (DESNZ) concerning its proposed subsidy scheme Contracts for Difference for Renewables (as at Allocation Round 6).

From:
Competition and Markets Authority
Published
11 January 2024
Last updated
21 February 2024 — See all updates
Case type:
SAU referral
Case state:
Closed
Market sector:
Energy
Opened:
11 January 2024

Administrative timetable

Date Action
21 February 2024 SAU’s report published
24 January 2024 Deadline for receipt of any third party submissions (submissions after 5pm on this date cannot be taken into account)
11 January 2024 Beginning of reporting period

Final Report

21 February 2024: The SAU has published its report providing advice to DESNZ concerning its proposed subsidy scheme, the Contracts for Difference for Renewables (as at Allocation Round 6). The report sets out the SAU’s evaluation of DESNZ’s Assessment of Compliance of its proposed scheme with the requirements set out in the Subsidy Control Act 2022.

Request from DESNZ

11 January 2024: The SAU has accepted a request for a report from DESNZ for its proposed subsidy scheme, the Contracts for Difference (CfD) for Renewables (as at Allocation Round 6). This request relates to a Subsidy Scheme of Particular Interest.

The SAU will prepare a report, which will provide an evaluation of DESNZ’s assessment of whether the subsidy scheme complies with the subsidy control requirements (Assessment of Compliance). The SAU will complete its report within 30 working days.

Information about the subsidy scheme provided by DESNZ

The CfD scheme has existed since 2014 and aims to encourage low carbon electricity generation. CfDs are long-term (15-year) contracts between a low carbon electricity generator and the CfD counterparty, the Low Carbon Contracts Company (LCCC). The generator sells the electricity at a variable market price. When the market price is below the strike price agreed in the CfD, the generator receives a top-up payment from LCCC for the additional amount (funded by a levy on electricity suppliers). When the market price is above the strike price, the generator must pay back the difference to LCCC. The CfD is open to application from any eligible renewable electricity generating station being or to be built in Great Britain.

Eligible technologies are: advanced conversion technologies, anaerobic digestion (>5MW), dedicated biomass with combined heat and power (CHP), energy from waste with CHP, floating offshore wind, geothermal, hydro (>5MW and <50MW), landfill gas, offshore wind, onshore wind (>5MW), remote island wind (>5MW), sewage gas, solar photovoltaic (>5MW), tidal stream, and wave. Typically, CfDs are offered following a competitive allocation round, and the lowest bids are accepted until the maximum budget for the allocation round is reached.

Allocation Round 6 (AR6) is planned to open to applications in March 2024. The main proposed change to the scheme for AR6 is amending the Private Network CFD Agreement to make renewable generators that directly supply offshore oil and gas facilities ineligible for that Agreement. Further minor changes have been made or are planned. These include plans for broadly administrative changes to the CfD contract terms and conditions, clarificatory changes to the allocation framework (which sets out the rules for AR6 and eligibility requirements applicants must satisfy), and updating of guidance and some questions on supply chain plans (whereby developers commit to actions to strengthen the capacity, productivity and competitiveness of their supply chains).

DESNZ has published core auction parameters for AR6 which include moving to 3 technology groups, or ‘pots’, with offshore wind moving into Pot 3 to compete in its own auction. DESNZ do not anticipate changing these parameters but, if amendments become necessary, they will notify developers and issue the updated parameters with the final budget, which will be published in March 2024, ahead of the round opening.

This budget will represent the yearly budget cap available for AR6 auctions over the relevant 4-year valuation period, though successful projects will receive subsidy over a 15-year period, so an estimate will be provided for the total subsidy amount on the transparency database. As an indication, the estimated total subsidy amount for AR4 was £15 billion and for AR5 it was £5 billion, though the estimated total subsidy amount for AR6 may be lower or higher than these figures. (These estimates are highly uncertain as actual payments will depend on market wholesale prices at the time and how much electricity each project generates: for further information, read Contracts for Difference (CfD) Allocation Round 4: Subsidy Control Transparency Database estimates and Contracts for Difference (CfD) Allocation Round 5: Subsidy Control Transparency database estimates.)

Information for third parties

If you wish to comment on matters relevant to the SAU’s evaluation of the Assessment of Compliance concerning DESNZ’s proposed subsidy scheme, please send your comments before 5pm on the date stipulated in the timetable above. For guidance on representations relevant to the Assessment of Compliance, see the section on reporting period and transparency in the Operation of the subsidy control functions of the Subsidy Advice Unit.

Please send your submissions to us at: SAU-CfD2024@cma.gov.uk copying the public authority: ContractsforDifference@energysecurity.gov.uk

Please also provide a contact address and explain in what capacity you are making the submission (for example, as an individual or a representative of a business or organisation).

Notes to third parties wishing to make a submission

The SAU will only take your submission into account if it can be shared with DESNZ. The SAU will send a copy of your submission to DESNZ together with its report. This is to allow the public authority to take account of the submission in its decision as to whether to grant or modify the subsidy scheme or its assessment. We therefore ask that you provide express consent for your full and unredacted submission to be shared. We also encourage you to share your submission directly with DESNZ using the email address provided above.

The SAU may use the information you provide in its published report. Therefore, you should indicate in your submission whether any specified parts of it are commercially confidential. If the SAU wishes to refer in its published report to material identified as confidential, it will contact you in advance.

For further details on confidentiality of third party submissions, see identifying confidential information in the Operation of the subsidy control functions of the Subsidy Advice Unit.

Contacts

Updates to this page

Published 11 January 2024
Last updated 21 February 2024 + show all updates

  1. Final report published

  2. First published.

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