2020 saw a substantial shift in the UK government’s plans to tackle the climate crisis. The government aims to double the capacity of renewable energy it will subsidise in 2021 by backing onshore, offshore, and floating wind projects, plus solar energy, wind, and tidal schemes.
The UK’s renewable industry has been busy during 2020 developing projects which are now expected to move into the build stage.
There are several elements to consider in relation to the anticipated deployment surge from 2021, including what portion of sites may be successful in the next Contracts for Difference (CfD) round within which solar is now allowed to participate.
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The Contracts for Difference (CfD) scheme is the government’s main mechanism for supporting low-carbon electricity generation.
CfDs incentivise investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with direct protection from volatile wholesale prices.
In November last year the Prime Minister announced a 10-point plan for a green industrial revolution which set out the government’s approach to accelerating the path to net zero emissions by 2050.
Subsequent to the announcement of the 10-point plan, the Department for Business, Energy & Industrial Strategy said the fourth round of the contracts for difference (CfD) scheme in late 2021 would aim to double the capacity to 12 gigawatts of renewable energy compared to the 5.8GW at the previous auction in 2019.
The BEIS believes that 12GW could be enough to power 20 million electric cars on the UK’s roads in a year.
The number of technologies supported by the CfD scheme was expanded last year with offshore wind, onshore wind, solar, tidal, and floating offshore wind projects all becoming eligible to participate. The fourth round will provide separate funds, known as ‘pots’ for those energy technologies the government wants to encourage.
The government’s announcement, in March of last year, to allow solar and onshore wind projects to be able to take part in CfD auctions for the first time since 2015 was very important for the solar and wind industry. These established technologies which were excluded from the third round will compete for Pot 1 which has been reserved for solar power and onshore wind.
For the first time, floating offshore wind projects will be included, allowing wind farms to be built further away from the shoreline. These projects will be able to compete for funding with other less established technologies including advanced conversion technologies and tidal stream projects. Pot 2 aims to encourage these less developed technologies.
Offshore wind will compete for a ring-fenced pot of CfD funding with the government recognising the long-term potential of offshore wind to support the country’s 2050 net zero target. Pot 3 is reserved for offshore wind with traditional fixed base foundations. Boris Johnson has signalled a commitment to raising offshore wind deployments to 40 GW, a quadrupling of present capacity, by 2030 as part of making the UK the ‘Saudi Arabia of wind’.
Further to these changes former coal-burning power stations, such as those owned by Drax PLC that have been converted to biomass generation will no longer be able to bid in future CfD rounds.
Energy Minister Kwasi Kwarteng said:
“The UK is a world leader in clean energy, with over a third of our electricity now coming from renewables. That huge achievement is thanks to the government’s Contracts for Difference scheme.”
The UK’s CfD scheme has not only already delivered results for developers but also consumers. Developers bid into an auction to win capacity additions at a fixed price which is known as the ‘strike price’. Due to the competitive nature of the auction process prices are driven down to get consumers the best deal while developers are awarded 15- year contracts to sell their electricity at the price agreed.
With a government-guaranteed future revenue stream, developers can then raise finance for their clean energy projects, attracting private capital into the renewable energy sector.
As the UK government unfolds its plans for a Green Industrial Revolution, interest in renewables continues to rise and the fourth round looks set to be every bit as competitive as the third.
Research suggests that the UK will need to build 9-12GW of energy generation capacity annually in order to reach the net zero target, which is higher than any output recorded in the UK in the previous 50 years.
However, renewables are continuously breaking generation and installation records nationally and now account for a large part of the UK’s energy mix. Renewable energy made up almost half of the UK’s electricity generation between January and March 2020. In total, wind power generated 30% of the UK’s electricity in the first quarter of 2020, beating the previous record of 22.3% set in the final months of 2019.