Regen has responded to the government's consultation on further reforms to the Contracts for Difference (CfD) Scheme for Allocation Round 7 (AR7), emphasising the need to support high-quality projects that will contribute to the Clean Power 2030 target. This response follows on from our response to the government's previous consultation on AR7.
AR7 is a critical milestone in the government achieving its Clean Power 2030 target. Regen is largely supportive of the proposed reforms. The amended scheme places Clean Power 2030 at its heart, focusing on accelerating the deployment of renewable energy and protecting households from volatile fossil fuel prices.
In particular, we welcome the public support for fixed and floating offshore wind, and repowered onshore wind sites, recognising the strategic importance of these technologies for the UK. It is positive that the government has recognised the importance of AR7 in delivering on its clean power targets and is working to improve the outcomes of this round. However, the CfD mechanism is only one piece of a complex development puzzle, which includes grid connections, planning and consents, and energy market reform, which all have to work together to improve investor confidence in the UK and accelerate renewable deployment for Clean Power 2030. We urge the government to ensure that the positive benefits gained from introducing the reforms to AR7 proposed in this consultation are not outweighed by risks from other areas of energy policy.
Amending the budget publication process and information received. Regen supports the government’s proposal to remove the requirement to publish a Contract Budget Notice at the opening of the Allocation Round and instead publish a capacity ambition. The government should look to introduce ‘soft caps’ on the published capacity ambition to address the underspend risk for fixed and floating offshore wind and maximise the volume of capacity contracted.
Increasing the contract term for future CfD projects. The government should consider how extending CfD contract years for all renewable technologies could offer better value for the consumer while helping to improve investor confidence, deliver on the government’s Clean Power 2030 targets and drive down costs. The government should conduct further analysis into the optimal CfD contract term and implement the changes from AR7 onwards to avoid the risk of projects deferring to later auctions.
Repowering of onshore wind. Regen supports the proposal to include repowered sites within AR7 and welcomes the changes to the eligibility criteria from the last government consultation.
Relaxing CfD eligibility criteria for fixed-bottom offshore wind projects. Regen supports the proposal to relax eligibility requirements to enable fixed-bottom offshore wind projects to apply for a CfD while awaiting their planning consent, provided this is targeted at projects that will help meet Clean Power 2030 targets. However, the government needs to ensure that fixed-bottom offshore wind projects with planning and consent are the primary projects supported through AR7, as they are most likely to be developed by 2030. The government should also consider the knock-on effects of this reform on the planning system and supply chain and should focus on strengthening these sectors and removing barriers to deployment.
Wider risks that may impact the Allocation Round. Regen shares the view of many experts and investors that an ambitious programme of reform of our current national market will deliver benefits to the consumer more quickly and with less implementation and investment risk than zonal pricing. The risk of zonal pricing is not sufficiently considered or mitigated and outweighs the potential benefits gained from introducing the reforms to AR7 proposed in this consultation. The government should focus REMA towards progressive market reforms that complement ongoing strategic planning and connection reforms to achieve a dynamic, highly agile and near real-time market that benefits consumers, building on the strengths of our current decentralised market.
Within the consultation, there were also a number of hints as to what we can expect from AR7, in particular for floating offshore wind.
Section 1.3 of the government's consultation commits to backing demo-scale floating offshore wind projects across the country to help "early investment in the development of the infrastructure and manufacturing capacity". There is also a strong signal that government will keep the Administrative Strike Price for floating offshore wind in AR7 the same as in AR6 (£176/MWh in 2012 prices).
Regen has been calling on government to recognise the strategic importance of floating offshore wind Test & Demonstration projects and so this is positive to see. These projects will be crucial in building the floating offshore wind industry and establishing centres of excellence in new regions of the UK. The government's focus on supporting floating offshore wind capacity in different geographies, "including in the Celtic Sea", resonates with the findings from our Go West! study, which found that accelerating development off the west coast of GB and north coast of Scotland could improve the consistency of power supply and reduce the volatility (rate of change) of energy generation, which would provide additional benefits for system operation and security of supply as well as reducing energy costs, carbon emissions and market risk.
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