Government hits accelerator on low-cost renewable power
Contracts for Difference auctions to be held annually, speeding up UK adoption of renewable power and boosting energy security.
- deployment of low-cost renewable electricity to be accelerated through the government’s flagship auction scheme
- the next Contracts for Difference (CfD) round will open in March 2023 and be the first in a series of annual auctions
- CfD supports new low carbon electricity projects by awarding contracts through a competitive auction process, backing domestic energy production
The rollout of low-cost renewable energy in the UK will be accelerated as the government ramps up auctions for its flagship renewables scheme to boost investment and jobs.
Today’s (Wednesday 9 February) announcement will see the frequency of auctions for funding through the Contracts for Difference (CfD) scheme change to every year rather than every 2 years. This will support renewable electricity producers and boost the UK’s renewable energy infrastructure. The change kicks in from March 2023 when the next CfD round opens.
CfDs are the government’s primary method of supporting renewable energy, driving down the cost of technologies and playing an important role in leveraging £90 billion of private investment by 2030.
The auction scheme has already proved successful at bringing down the per unit price of offshore wind by around 65% since the first auctions were held - helping the UK become one of the world’s largest generators of wind power.
In the last allocation round, new contracts were awarded, with the potential for nearly 6GW of further capacity. This is enough to power over 7 million homes at record low prices and could see the creation of thousands of jobs across the UK. Increasing the frequency of auctions will also give more projects the opportunity to enter the system, helping to scale-up the UK’s supply of renewable energy and to support the country’s long-term energy security.
Business and Energy Secretary Kwasi Kwarteng said:
We are hitting the accelerator on domestic electricity production to boost energy security, attract private investment and create jobs in our industrial heartlands.
The more clean, cheap and secure power we generate at home, the less exposed we will be to expensive gas prices set by international markets.
Energy Minister Greg Hands said:
The UK is already leading the world in renewable energy and today’s announcement will take us even further. This will help provide cheaper energy to consumers, guaranteeing more of our energy is produced at home and reducing our dependence on fossil fuels.
Today’s announcement follows important government announcements to support the UK’s nuclear sector: This includes up to £1.7 billion to enable a final investment decision on a large-scale nuclear project in this Parliament, the Nuclear Energy (Financing) Bill, a £120 million Future Nuclear Enabling Fund, and a £210 million grant to a Rolls-Royce-led consortium to develop a UK Small Modular Reactors design.
Bids under the CfD scheme that are cost-effective and offer taxpayers’ value for money are successful, driving efficiency and securing new renewable generating capacity here in the UK.
In the last allocation round, 12 new contracts were awarded, with the potential for nearly 6GW of further capacity. This is enough to power over 7 million homes at record low prices and could see the creation of thousands of jobs across the UK.
Dan McGrail, Chief Executive of RenewableUK said:
Moving to annual CfD auctions is a major step forward which will significantly accelerate the speed of our nation’s transition to net zero. It’s good news for consumers too, as it means the UK will be reducing its vulnerability to volatile international gas prices and increasing the volumes of low cost renewable energy in our energy system. There’s a huge appetite among renewable energy developers to invest in building more projects, which will help to grow the UK supply chain at a faster rate. This will enable us to maximise the economic benefits which this sector offers to everyone, especially in parts of the country which urgently need levelling up.
We need build up to 4GW of new offshore wind capacity every year to stay on track for net zero, which means quadrupling our current annual rate. Similar increases in onshore wind, solar and other clean power sources are vital too, as well as ramping up the roll-out of innovative technologies like floating wind, green hydrogen and marine power.
Morag Watson, Director of Policy at Scottish Renewables, said:
By 2050 demand for electricity will have almost doubled, and the vast majority of that electricity must come from renewable sources if we are to meet net-zero.
The Contracts for Difference mechanism plays a central role in facilitating that, 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 government responding to industry calls for this to happen.
In the Net Zero Strategy, the government committed to accelerating the deployment of low-cost, low-carbon electricity generation by reviewing the frequency of the CfD auctions.
Increased CfD round frequency underlines the government’s commitment to accelerate low carbon electricity generation to achieve a fully decarbonised electricity system by 2035.
It follows the government’s announcement last week of a £9.1 billion package of support to help households with rising energy bills. This includes a £200 discount on household energy bills this Autumn for domestic electricity customers in Great Britain, which will be paid back automatically over the next 5 years.
There will also be a £150 non-repayable rebate in 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 need support but are not eligible for the Council Tax rebate.
These new measures are on top of the existing £12 billion support the government is providing for the cost of living this financial year and next. This includes reducing the Universal Credit taper rate, raising the National Living Wage, freezing alcohol and fuel duties and providing targeted help with energy bills.
Notes to editors
The Contracts for Difference (CfD) scheme is the government’s main mechanism for supporting new low carbon electricity generation projects. CfDs are 15-year private law contracts between electricity generators and the Low Carbon Contracts Company (LCCC), a government-owned company that manages CfDs at arm’s length from government.
Contracts are awarded through a competitive auction; the lowest price bids are successful, which drives efficiency and cost reduction and is the cheapest way to secure new renewables generating capacity. These auctions are run in CfD allocation rounds held approximately every 2 years since they began in 2014.
BEIS reviewed the frequency of CfD allocation rounds, gathering views from industry. There was overwhelming support for more frequent and increased certainty on allocation round timing.
Increased auction frequency should benefit developers and the supply chain, as well as further supporting the UK in meeting its Net Zero and renewable electricity targets.
So far, Contracts for Difference has supported around 16GW of new low-carbon electricity capacity, including 13GW of offshore wind. This is enough to power over 15 million homes.
The share of coal free electricity generation in the whole of 2020 increased by 41.9% (5,202 hours) compared to 2019 (3,665 hours).
A budget of £285 million has been set for the fourth CfD round, comprising £10 million for Pot 1, £75 million for Pot 2 and £200 million for offshore wind (Pot 3). Achieving our aim of decarbonising 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. Including them in the 2023 and future CfD allocation rounds will support progress towards our decarbonisation objectives at low cost.