The Contracts for Difference (CfD) regime was introduced by the UK government in 2014, and replaced the Renewable Obligation (RO) scheme (except to the extent that RO is still operating for those renewable energy generators that signed up to the scheme before it closed, as the payments are guaranteed for the length of the period agreed under that scheme).

As the Government’s websitei makes clear:

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, and they protect consumers from paying increased support costs when electricity prices are high.

Renewable generators located in the UK that meet the eligibility requirements can apply for a CfD by submitting what is a form of ‘sealed bid’. There have been 3 auctions, or allocation rounds, to date, which have seen a range of different renewable technologies competing directly against each other for a contract.

Successful developers of renewable projects enter into a private law contract with the Low Carbon Contracts Company (LCCC), a government-owned company. Developers are paid a flat (indexed) rate for the electricity they produce over a 15-year period; the difference between the ‘strike price’ (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the ‘reference price’ (a measure of the average market price for electricity in the GB market).

Eagle-eyed observers of the BBC’s website may have noticed an articleii written by Roger Harrabin that appeared there on 9th February 2022. It carried the title: “Renewables auctions to be held annually in green energy push”.

In the past, allocation rounds (ARs) for CfDs have been held broadly every two years, with AR1 running from October 2014 to April 2015; AR2 running from March to September 2017); AR3 running from May to September 2019); and AR4 opening to applications on 13th December 2021. And, according to a Business Statementiii issued to Parliament by Kwasi Kwarteng on 9th February 2022, AR5 is to be brought forward to March 2023.

And now, as the BBC tells us:

The government has re-stated its faith in green technologies with a decision that it says will create a steady stream of renewable energy projects.

Energy Secretary Kwasi Kwarteng says renewable power is the best way to shield the UK from volatile gas prices.

He announced that auctions to supply low-carbon electricity will now happen every year, instead of every two.

He says this will bring more certainty to firms planning to invest in wind turbines and solar panels.

The renewables industry is delighted…

I should think it is. This has proved a nice little earner (or, more precisely, rather a big earner) for the industry since its inception. Those who would have you believe that renewables aren’t subsidised should reflect on why there is such delight on the part of “Big Wind”.

One has to hope that a comment made by the Secretary of State towards the end of his Parliamentary Statement is significant, and that somebody is keeping an eye on “the wider system, including total system costs”:

As more renewables are added to the system, we will continue to consider how the scheme could evolve over the longer term to ensure it reflects the impact of renewables on the wider system, including total system costs.

It would be nice to think that, at last, there is a recognition that unreliable and unpredictable renewable energy greatly adds to the “total system costs” and that, better still, those costs are allocated to those responsible for them, namely the renewable energy companies. That would also help to level the playing-field, and ensure that claims about “cheap” renewables are held up to the glare of full publicity of the overall costs implications they have for the wider system.

Press Release

On the other hand, the associated press releaseiv does give cause for some concern. While I appreciate that the whole point of a press release is to obtain publicity and drum up support for a new initiative, I think when we are talking of a Government press release it should be more substantial than the sort of “advertising puff” one might expect of a business, and it should be scrupulously accurate in all that it claims. In this case, I have a concern that Government ministers believe their own publicity.

For instance, it begins like this:

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.

That immediately raises a number of controversial questions. By referring to “low-cost renewable energy” it obviously seeks to undermine claims that the expensive and unreliable renewable energy we are increasingly being forced to rely upon is in any way behind the current energy price crisis. In doing so, it conveniently ignores the fact that the early rounds of CfD provided very high prices for renewable energy companies, and that they are generally locked in for 15 years. Thus high costs are baked in (to use a phrase much loved of green lobbyists) to the system until 2030 and beyond, but nobody in Government seems to want to talk about that. As for boosting investment and jobs – where are the jobs? Point them out: if all this is as successful as claimed, it shouldn’t be too difficult.

A little further on we read this:

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.

Where does that figure of £90 billion come from? It’s an aspiration, but there is no guarantee that it will be achieved. It’s a pity that Government press releases aren’t fact-checked by the BBC’s “misinformation correspondents” or subject to the jurisdiction of the Advertising Standards Agency or Trading Standards-style laws.


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.

It is gratifying that costs are coming down, but they are coming down from a very high starting point, and, as mentioned above, they don’t take into account the costs of destabilising the National Grid. Perhaps it wouldn’t be appropriate for a Press Release, but a footnote with a link to a handy website where the actual costs can readily be seen might have been nice.

Here we go again:

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.

This is just smoke and mirrors, and not worthy of a serious communication. “Potential”, “nearly” and “power over 7 million homes” combine weasel words with something close to active deception. Homes can be said to be “powered” if that power is reliable and constant, which renewably-generated power most certainly isn’t. The Government shouldn’t be using the same sharp advertising tactics of renewable companies. It should be telling its people the clear, straightforward, unadulterated truth. As for “could see the creation of thousands of jobs across the UK” I fear this is wishful thinking. Without firm legal commitments to create long-term well-paid jobs for UK citizens, then this amounts to little more than spin.

Disappointingly, perhaps for want of anything else to say, this paragraph is simply repeated further down the press release.

I don’t know what others feel, but I’m not sure that quotes from business people should appear in a Government press release, but that’s what has happened here, with quotes from Dan McGrail, Chief Executive of RenewableUK and Morag Watson, Director of Policy at Scottish Renewables. It all just feels a little too cosy. As for Morag Watson saying this:

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.

I am far from convinced that the hubristic claim that “we” can “tackle climate change” should be allowed. With UK emissions representing around 1% of global emissions that are rising, not falling, it is simply wrong, in my opinion, to talk as though “we” can do anything at all about climate change by reducing our emissions. This idea that it’s all down to us and that we can do it is, frankly, ridiculous. The language of all concerned should be moderated to reflect the global reality.

Finally, the press release contains this little gem:

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).

I wonder why they didn’t mention 2021’s lousy statistics?


Perhaps the next CfD ARs should stipulate the exclusion of certain wind turbine manufacturers, unless the story reported by the BBC (Giant wind turbine collapse to be investigatedv) turns out not to be their fault? In fact, why not stipulate that all turbines to be used under any CfDs must be manufactured in the UK using materials also manufactured in the UK? Or would the UK’s expensive energy render low CfD bids unfeasible in that case…?








  1. Sceptics have sometimes alleged that the current low strike price CfDs are merely bookmarks, and that the generating company intends to terminate the contract and sell at the market rate. (I am sure the market rate presently exceeds the strike prices that had certain folk gushing about how cheap wind was etc.) The penalty for exit is said to be low, but I don’t know what it is, nor where it is written. I have searched for it in the CfD standard terms and conditions, which runs to over half a thousand pages of almost English, but have had no luck there.

    We may find out when the first company backs out of its commitment to supply at these rock bottom CfDs, if our media dares to report it.

    The standard terms and conditions and generic contract are at this page, if anyone does not have a wall to watch paint drying on:

    Liked by 3 people

  2. Jit, thanks also for that very valid and pertinent comment.

    I have heard the same view expressed, and the article took longer to produce than I intended, because I spent many a long hour searching for evidence of the termination provisions in CfDs – long, fruitless, hours as it turned out. Like you, despite trawling the website relevant to CfDs, I simply couldn’t find anything about it. I wonder why that should be? Time, and time alone, will tell how all this works out.


  3. I have just posted this comment at “Where Did All The Green Jobs Go?”

    I’m drawing attention to it on this thread too, because it rather contradicts the Government press release I referred to in this article, with its grandiose claims about “green” jobs. And after all, isn’t the ONS part of the Government, or at least part of the official paraphernalia? The ONS website report is here:

    [Link to the comment fixed Mark. I put the following duplicate comment into ‘Pending’. — Richard]


  4. Should anyone be interested in the minutiae of the AR process for CfDs, a look at this website will demonstrate just how bureaucratic and complex and slow the whole process is (at least in terms of AR4):

    Perhaps the jobs of the people overseeing the process can be described as “green jobs”. Goodness knows, in view of today’s news about the lack of them, they need to magic some up from somewhere.

    Liked by 1 person

  5. I have always been a tad sceptical of all the green jobs to be created by renewables. You see I was wrongly under the impression that these jobs would be for athletic types needed to shin up the wind turbines for annual inspections. But perusing the Contracts for Difference document provided by Jit: 16 FEB 22 AT 8:43 AM I fully realise the abundance of jobs it will create. Admittedly not the sort of job I would aspire to, or even opt for instead of having my teeth extracted without anaesthetic, but jobs aplenty nevertheless. The document is 542 pages long of which over 60 pages are definitions. Yet one definition is missing. What is Contract for Difference CfD?
    Clearly these are not jobs for Climate Scientists as they do not have clear definitions for anything.

    Click to access AR3-Standard-Terms-and-Conditions.pdf

    Liked by 1 person

  6. The latest CfD Stakeholder Bulletin has been released, and tells us things like this:

    “The non-qualification review assessment window is now open. National Grid ESO will assess any non-qualifying applications that were submitted for review by 25 March 2022.

    National Grid ESO informed all Allocation Round 4 (AR4) applicants of the outcome of their application following the qualification assessment window, which concluded on 25 February 2022.

    Between 28 February and 4 March 2022, any applicants that did not qualify could submit a request for National Grid ESO to review its decision.

    National Grid ESO will review the relevant applications by 25 March 2022.

    Once the non-qualification review assessment window is complete, any decisions that are upheld may be appealed.

    Applicants that remain non-qualifying following National Grid ESO’s determination may submit an appeal to Ofgem for a decision. Requests for appeals should be submitted from 28 March to 1 April 2022.

    If the review finds that all relevant applications qualify for AR4, National Grid ESO will notify applicants whether an auction is required and, if so, invite the submission of sealed bids. This will happen by 5 April 2022 if all applications qualify following the review.”


  7. The AR4 update has just been issued, as follows:

    “Allocation Round 4 update
    The appeals submission window is now open and will close on 1 April 2022 at 5pm.

    National Grid ESO informed relevant Allocation Round 4 (AR4) applicants of the outcome of their non-qualification review result on 25 March 2022.

    Applicants that remain non-qualifying following National Grid ESO’s determination may submit an appeal to Ofgem for reconsideration. Requests for appeals may be submitted from 28 March to 1 April 2022.

    If any appeals are submitted during this window, Ofgem will consider them between 12 April and 12 May 2022.”


  8. I could have posted this under Greenhouse Gassing (since it’s a conference organised by the people I wrote about there), but since it’s about CfDs, I’ll leave it here:

    “Next steps for the Contracts for Difference Scheme – Innovation across renewables, Supply Chain Plans, and assessing the future market outlook

    Morning, Friday, 15th July 2022”

    Areas of discussion include:

    Allocation Round 4 – what has been learned – what can be applied going forward
    Holistic Network Design – scope – development priorities for offshore wind projects
    supply chains resilience – improving Supply Chain Plans – efficiency – infrastructure priorities – commercialising emerging technologies
    market reform and development – outlook – balancing competition and accessibility – reducing costs of technology – support for rapid and sustainable low carbon scale-up
    role in wider policy ambitions – energy security and costs – net-zero objectives – increasing home-grown supply – reducing exposure to volatile international markets


  9. Another technical update to the CfD allocation programme:

    This one runs to 69 pages:

    Click to access CMP308%20Decision_0.pdf

    This is the short version:

    “Ofgem has announced today that from 1 April 2023 generators will no longer pay Balancing Services Use of System (BSUoS) charges.

    The announcement follows the outcome of a consultation that sought views on proposed changes to the way the charges are collected from electricity network users.

    Ofgem will implement the decision by modifying the Connection and Use of System Code (code modification CMP308).

    For successful projects in Allocation Round 4 (AR4) that would otherwise have been liable to pay the charges, today’s announcement means that their strike prices will be adjusted downwards after contracts are awarded. The adjustment will be applied from 1 April 2023 to coincide with Ofgem’s decision taking effect.”


  10. Paul Homewood has already posted this in full at his place, and I’ll provide a link to his website below, but the direct link to the original story is here:

    And at Paul’s place:

    It’s relevant here, given that part of the discussion has been about how loosely CfDs are drafted, and how easy (or otherwise) it is for the commercial partners (the energy companies) not to honour their terms in full or at all. This story casts a little light on that, and the story it tells isn’t good.


  11. Latest update regarding CfD AR4:


    “Webinar: Initial Conditions Precedent
    • Date: Thursday 7 July 2022, 10.00am–11.00am
    Join the Low Carbon Contracts Company (LCCC) for this webinar on the Initial Conditions
    Precedent (ICP) process in AR4.
    LCCC is the Contracts for Difference (CfD) counterparty and one of the four CfD delivery partners.
    In this webinar, LCCC will provide guidance on the ICP, the first contractual requirements after
    signing a CfD. This webinar is therefore particularly relevant for AR4 applicants.
    The webinar will take attendees through the three components of the process – Legal Opinion,
    Know Your Customer and Facility Description – and provide an opportunity to ask questions”


  12. Don’t they keep telling us that Contracts for Difference are driving down costs and saving us money? Strange, then, that the latest update for AR4 says this:

    “From: Secretary of State for Business, Energy and Industrial Strategy
    To: National Grid Electricity System Operator Limited, EMR Delivery Body
    This notice is given pursuant to Regulation 12 of the Contracts for Difference (Allocation) Regulations 2014
    (as amended). A copy of that regulation is included in Schedule 2 to this notice.
    This notice applies to the fourth Contracts for Difference (CfD) Allocation Round, as established by the
    allocation round notice given by the Secretary of State on 25 November 2021.
    CfD Budget
    1. The Budget for CfD Allocation Round 4 (as set out in the Budget Notice given by the Secretary of State
    on 25 November 2021) is revised as follows-
    (a) The overall budget available for the Delivery Years, 2025/26 and 2026/27, and for the Valuation
    Years 2027/28 and 2028/29, is increased by £10m for each of these years;
    (b) The budget increase described in (a) applies only to the Pot 3 budget, so that the budget for Pot
    3 for the Delivery Years, 2025/26 and 2026/27, and for the Valuation Years 2027/28 and
    2028/29, is increased by £10m to £210m for each of these years.”

    Click to access cfd4-allocation-budget-revision-notice.pdf


  13. The wheels grind slowly, but we now have another update on AR4:

    “Allocation Round 4 update: Allocation process
    The sealed bid window has closed, and National Grid ESO will now run the allocation/auction process.

    The allocation process will be followed by an independent audit.

    Subject to the outcome of the independent audit, the next update will be on 7-8 July 2022, once qualifying applicants have been informed of the results of the auction.”


  14. From Wind Energy’s Absurd today:

    “Bells and a good sprinkling of fairy dust today as the Government announces the results of the 4th round of Contracts for Difference.
    Kwasi Kwarteng – Business Secretary: ‘Eye-watering gas prices are hitting consumers across Europe. The more cheap, clean power we generate within our own borders, the better protected we will be from volatile gas prices that are pushing up bills.’
    Greg Hands, Energy Minister: ‘ This fourth round shows the government’s Contracts for Difference scheme continues to be a roaring success.’
    Melani Onn, Unreliables Deputy CEO: ‘Thanks to the rapid construction times of new onshore wind and solar sites, billpayers will start to feel the benefits of today’s auction next year.’
    One can expect nonsense-speak from Unreliables, but here we have Ministers coming out with the same claptrap as they’ve always done, no matter when or what party is in power.
    ‘Roaring success’! Really? When in the last few weeks we have posted that companies already granted CfDs in the previous round have delayed construction because it makes them financially better off to do so, given the huge price increases which would otherwise have resulted in them having to pay money over.
    And then we have the super-weasel-wheeze – some CfD-supported wind plant in fact paying the ESO to turn down (e.g. a positive bid price), in order to avoid their CfD repayment in periods where the day-ahead price exceeds their strike price.’
    And in any event, the penalties for coming up with a ludicrously low price and then opting out of CfDs is much too low, making the whole CfD scenario an aspect of renewables absurdity.
    So – roaring success? Yes, perhaps, but not for the consumer.
    Most solar applications are in England, but….guess what? Most wind, onshore and offshore, is in Scotland.
    The first link is to the Gov announcement; the second gives the list of those grants in the 4th round.”

    Click to access contracts-for-difference-allocation-round-4-results.pdf


  15. Mark, many thanks for the links, quotes, satire and other commentary! I was a bit confused on which was which until googling suggested that Melani Onn should be *Melanie* Onn, “RenewableUK deputy chief executive,” as has it, “Shadow Deputy Leader of the House of Commons” under Jeremy Corbyn as Wikipedia has it. And only 43 years old.

    What an abominable racket, with this ‘old-timer’ of the Labour Party, a party that is meant to represent the poor and the workers, conniving in or perhaps even convinced by the dogma that she is doing good for the poor and the workers of the world while lining the pockets of the rich. Anyway, thanks again.

    Liked by 1 person

  16. “Price of offshore wind power falls to cheapest ever level in UK
    Contract price is nearly 6% lower than previous auction in 2019, which could ease pressure on energy bills”

    “The price of offshore wind power in the UK has fallen to an all-time low, which could ease the pressure on future household energy bills.

    Following the biggest ever UK renewables auction, the government said on Thursday the contract price for windfarms was nearly 6% lower than the previous auction, despite the rising cost of materials to build windfarms.

    A string of new contracts should add about 7 gigawatts of clean power capacity to Britain’s turbine fleet by 2026. The government hopes to have 50GW by 2030 and has embarked on a push to expand Britain’s renewables industry in the face of rocketing fossil fuel prices….

    …Offshore windfarm operators will sell power for as little as £37.35 per megawatt hour, 5.8% below the lowest bid in the most recent auction in 2019.

    The “contracts for difference” guarantee wind-power companies fixed prices to sell electricity for the following 15 years. If the market price falls below the contract price, the government subsidises the difference. If the market is higher, the companies pay money back to the government.

    Since wholesale energy prices began to rocket last year, windfarms have begun paying back money to the government….”

    A few problems with this reportage, IMO. First of all, they started paying very small amounts back, but the last time I looked, those payments had dried up. Secondly, existing CfD contracts look more like options in favour of the wind farm companies, who have been deferring commencement dates, while they benefit instead from higher market prices. Kwasi Kwarteng’s plea for them to play the game seems to have fallen on deaf ears. And there’s this from Net Zero Watch:

    “The announced costs for windfarms after 2024 do suggest a reduction in levelised costs, but only to around the £100/MWh mark. These reductions are due to the Dogger Bank windfarms, which are being built in shallow waters. However, they are also far offshore – up to 200km. The best guide we have as to the effect of such distances on costs is Hornsea 1, which, as we have seen, has turned out very expensive. So it would not be at all surprising if these huge windfarms turned out to be no cheaper at all.

    Even if the Dogger Bank windfarms do turn out to be able to generate power at £100/MWh, electricity in the UK will still become disastrously expensive. ”

    And note, especially:

    “As always when using levelised costs, it should be noted that this refers only to costs at generator level. The cost of dealing with the intermittency of wind power is not included.”

    That last quote is from the Net Zero Watch paper. The one that follows is from the Guardian report:

    “Separately on Thursday, the National Grid laid out the biggest investment plan in the UK’s electricity network since the 1960s. In the £54bn upgrade connections to the grid for offshore windfarms will be coordinated for the first time.

    National Grid’s electricity arm proposed 15 connection points to bring 18 offshore windfarms to land. Most offshore wind projects have their own connection to the grid. National Grid hopes to reduce costs and cut down disruption for coastal residents by reducing the number of cables and pylons needed.”

    Funnily enough, nobody seems to be counting that extraordinary extra cost either when claiming that wind farms are cheap.


  17. “Major renewables boost as three isles wind farms given subsidy”

    “THREE Shetland based wind farm projects have been successful in applying for subsidy from the UK Government.

    The Viking Energy, Beaw Field and Mossy Hill developments all feature in the government’s latest Contracts for Difference (CfD) auction results.

    Viking is already under construction, but the news should in effect pave the way for Peel Energy’s already consented Beaw Field and Mossy Hill wind farms to go ahead.

    Chairman of campaign group Sustainable Shetland Frank Hay said the announcement, with the “usual fanfare trumpeting cheap renewables”, will require close scrutiny.

    “Cheapest is not always best and wind power comes with many drawbacks, notably the need for backup, which is not taken into account for CfD calculations,” he said. “If wind power is so cheap, why is there a need for subsidy at all? It should not be forgotten that subsidies are ultimately paid for by energy consumers through higher bills.”…”.


  18. “Government publishes Supply Chain Plan questionnaire”

    The government has today published the Supply Chain Plan guidance and questionnaire for Allocation Round 5.

    Key changes to Supply Chain Plans for AR5:
    • Floating Offshore Wind projects smaller than 300MW will be included in the Supply Chain Plan (SCP) process
    • Raising the SCP pass mark from 50% to 60% (except for Floating Offshore Wind projects smaller than 300MW for whom the pass mark will be 50%)
    • Introduction of feedback sessions into the Supply Chain Plan process to give applicants the opportunity to make amendments to a plan during the assessment process.
    • Introduction of a new template for the supply chain plan questionnaire to provide more clarity

    In order to qualify for a Contract for Difference (CfD) Allocation Round, CfD applicants for a generating station with generation capacity of 300MW or more – and from Allocation Round 5, CfD applicants for Floating Offshore Wind projects of any size – will be required to provide National Grid ESO (as Delivery Body) with a statement by the Secretary of State for Business, Energy and Industrial Strategy approving the Supply Chain Plan submitted in respect of that station.
    The applicant’s responses to the scored sections of the Supply Chain Plan questionnaire will be assessed to determine award of this Supply Chain Plan statement of approval, and hence eligibility to participate in the CfD scheme.

    These documents set out the process for submitting and assessing supply chain plans for Allocation Round 5:
    • the Supply Chain Plan questionnaire for projects over 300MW
    • the Supply Chain Plan questionnaire for Floating Offshore Wind projects under 300MW
    • guidance on how to complete the questionnaire and on the Supply Chain Plan process as a whole
    • a copy of the relevant tables to complete as part of the Supply Chain Plan questionnaire

    Successful applicants also need to receive a Supply Chain Implementation Statement from the Secretary of State confirming they have successfully passed their Supply Chain Plan implementation assessment in order to fulfil one of their CfD Operational Condition Precedents (OCP).


  19. BEIS has just issued this:

    “Contracts for Difference, Supply Chain Plan for Allocation Round 5
    Your Questions and Answers, September 2022”

    General and Process Questions
    Q: What is the purpose of a Supply Chain Plan?
    Supply Chain Plans are designed to encourage renewable energy developers to commit to actions that
    will strengthen the capacity, productivity and competitiveness of their supply chains. This has become
    all the more crucial in the context of our Energy Security Strategy, and recent supply chain bottlenecks.
    Q: What are you aiming for with the Supply Chain Plan changes in AR5?
    An assessment and lessons learnt exercise from AR4 showed that the revised Supply Chain Plan
    format went a long way to achieving the government’s objectives of clearer, and more measurable
    commitments but there were still some areas where improvements could be made, notably around the
    clarity of the questions and the transparency of the scoring system. With more robust, clearer
    questions, and a revamped scoring system, we hope to encourage a higher quality of responses that
    will lead to more measurable and tangible outcomes.
    Another aim of the changes in AR5 is about further supporting the supply chains of emerging
    technologies. The government identified Floating Offshore Wind as a technology on the verge of
    significant commercialisation and deployment within the next 5 years. Therefore, we have brought it into
    the Supply Chain Plan process with a bespoke, lighter-touch questionnaire. This will allow BEIS to
    support the development of the associated supply chain at an early stage, paving the way for
    investments in innovation and competitiveness.

    There’s quite a lot more. If anyone is interested in finding out more, I can supply it. However, given the nature and scale of the energy crisis, it still feels as though BEIS is fiddling while Rome burns.


  20. In a fast-moving arena, it’s tempting to think that the latest update about CfD AR5 will soon be out of date, but who knows?

    Allocation Round 5 draft timeline
    A draft indicative timeline for Allocation Round 5 (AR5) has been published on the Contracts for
    Difference (CfD) microsite. As the Government announced in February 2022, CfD rounds will now
    happen annually, instead of every two years. It is planned for AR5 to get underway in March 2023.
    This is an indicative timeline that sets out the key milestones for AR5. Timings may be subject to
    change and a final timeline will be published in due course.


  21. “Considerations for future Contracts for Difference (CfD) rounds”

    This consultation is inviting views on potential changes for Allocation Round 6 (AR6) (due to open in 2024) and future rounds beyond AR6, as well as providing several policy updates.

    These include:

    a proposal to make electricity supplied by private wire to offshore oil and gas facilities ineligible for CfD payments;
    requests for views to inform whether:
    the definition of floating offshore wind should be amended to reflect the evolving nature of this new and emerging technology
    offshore wind farms connected to a multi-purpose interconnector should be eligible to apply for a CfD and how this could be enabled
    phasing policy should be retained for fixed-bottom offshore wind projects
    the current CfD appeals process remains appropriate in line with annual auctions
    the CfD is an appropriate mechanism to support repowered projects and questions around how this could be facilitated
    policy updates in relation to maintaining the balance between market exposure and investor certainty for CfD holders, the interaction between the CfD scheme and Capacity Mechanism on matters of eligibility and the potential consideration of whether other factors beyond price should be taken into account in contract awards
    We welcome responses from anyone with an interest in the proposals, including those considering participating in AR6 and future CfD rounds.

    Given the massive problems with CfDs, evidenced by the failure of many energy companies to take up their options under them, preferring to rake in windfall profits under current market rates instead, this all looks rather weak to me.


  22. A translation into English of that Government consultation:

    “BEIS cracks down on CfD start date delays ahead of auction
    UK government consults on plan to stop developers cashing in on high merchant power prices once projects are built”

    The UK government plans to bar future Contract for Difference (CfD) winners from delaying their contract start dates in order to take advantage of high merchant power prices.

    The Department for Business, Energy & Industrial Strategy (BEIS) has published a consultation on changing CfD terms and conditions ahead of Auction Round 5 to ensure that developers do not delay initiating their 15-year strike prices “to optimise electricity generation revenue during the target commissioning window”.

    BEIS said that it will allow flexibility on start dates where there are “genuine construction hold-ups or other unforeseen delays”.
    The government is meanwhile consulting on several other amendments, which include replacing the monthly requirement of an expected start date and installed capacity with a “provision of estimates at specific milestones”.

    It is also consulting on removing a requirement for generators to provide expected generation output data as a CfD operational condition, as well as reflecting that generators now have to file supply chain plans for floating wind farms under 300MW and the end to pay Balancing Services Use of System charges from April 2023.

    The consultation runs until 5 February with the findings to be implemented in time for the launch of the CfD round in March.

    Good news that somebody is actually thinking about how to put an end to this nonsense. The only problem is that if they do achieve their plan, the Law of Unintended Consequences will kick in, and they’ll probably find that new CfDs at low prices dry up altogether. That’s not ideal, but it might put an end to the nonsense of people claiming that wind energy is “nine times cheaper” than gas. Reality might just dawn at that point. ANd if it does, with luck, the drive to ever more renewables might cease.


  23. Confirmation of “Allocation Round 5 Launch Event”:

    The fifth allocation round of the Contracts for Difference Scheme is planned to open in March 2023. This will be the first CfD round to run annually and it follows the success of Allocation Round 4 in 2022.

    Allocation Round 5 will feature some changes compared to the previous round – these changes are set out in documents published by government in December 2022.

    Those differences are referred to here:

    The AR5 Core Parameters confirm the pot structure, administrative strike prices, delivery years for AR5. AR5 will feature two auction pots (instead of three pots, as in AR4), with offshore wind competing alongside other established technologies in Pot 1. Newer technologies will compete in Pot 2. The shift to two pots reflects the success of the CfD scheme in helping bring down the per unit cost of offshore wind so that it is now competitive with other established technologies. Government is still committed to having up to 50GW of offshore wind by 2030, including up to 5GW of floating wind….


  24. The latest timescale is now in:

    “Contracts for Difference Allocation Round 5: Indicative timetable scenarios”

    The application window is planned to open on Thursday the 30th of March and close on Monday the 24th of April. The dates in the timeline are provisional and may be subject to change. The microsite will be updated if there are any changes to the timeline before AR5 opens to applications.

    Provisional timetable details are here:

    Click to access AR5%20indicative%20timetable%20-%20all%20scenarios%20-%20.pdf


  25. “Allocation Round 5 Budget Confirmed

    The government has today confirmed that a budget of £205 million has been set for the fifth
    allocation round of the Contracts for Difference (CfD) scheme.

    Details of the budget are set out in the Budget Notice, alongside several other statutory notices
    required to launch the fifth allocation round (AR5), has been published by the government on 16th
    March 2023.”

    That’s another £205M of taxpayers’ money casually thrown away. This is the interesting bit:

    “Contracts for Difference (CfD): Budget Notice for the fifth
    Allocation Round, 2023
    From: Secretary of State for Energy Security and Net Zero
    To: National Grid Electricity System Operator Limited, EMR Delivery Body”

    Click to access AR5%20Budget%20Notice%20PDF.pdf

    The technology groups (‘pots’) are as follows:
     Pot 1: Energy from Waste with CHP, Hydro (>5MW and 5MW), Remote Island Wind (>5MW),
    Sewage Gas, and Solar Photovoltaic (PV) (>5MW).
     Pot 2: ACT, AD (>5MW), Dedicated Biomass with CHP, Floating Offshore
    Wind, Geothermal, Tidal Stream, Wave.

    Strike prices, in 2012 prices, note, are as follows:

    Table 3: CfD Administrative Strike Prices (£/MWh, in 2012 prices)
    Technology Type Administrative Strike Price
    Advanced Conversion Technologies (ACT) 182
    Anaerobic Digestion (> 5MW) 136
    Dedicated Biomass with CHP 162
    Energy from Waste with CHP 116
    Floating Offshore Wind 116
    Geothermal 119
    Hydro (>5MW and 5MW) 53
    Remote Island Wind (> 5MW) 53
    Sewage Gas 148
    Solar PV (> 5MW) 47
    Tidal Stream 202
    Wave 245

    The only cheap ones are landfill gas, wind, and large-scale solar and (to an extent) hydro. The rest are very expensive. My money is on people signing up for expensive contracts, and the “cheap” (though they are not so cheap as they look, since they are in 2012 prices) one not ultimately going ahead. After all, wind companies are screaming out that they need financial help now if they are to proceed. This looks like another exercise in Cloud Cuckoo Land.


  26. “Allocation Round 5 Opens”

    The fifth round of the Contracts for Difference (CfD) scheme has opened to applications today (Thursday 30th March 2023). The application window will close on 24th April 2023.

    Allocation Round 5 (AR5) is the first CfD round to run annually, instead of every two years. Government has listened to industry and doubled the frequency of CfD rounds, shifting to annual auctions. This will help accelerate the deployment of low carbon electricity in GB, support the UK’s climate ambitions and strengthen British energy security. The Government announced the budget for AR5 on 16th March …

    I’m awaiting confirmation that the loophole allowing applicants to defer start dates (apparently indefinitely) while hoovering up higher market prices has definitively been closed.


  27. Like

  28. Like

  29. “The great renewables rip-off continues”

    Consumers face huge price rises for green power
    Renewable energy operators have just been awarded huge prices rises, putting further pressure on hard-pressed consumers.

    Generators in the Contracts for Difference subsidy scheme get an annual increase in the guaranteed ‘strike prices’ they receive for their output. This year, many have received price rises of more than 10%. For example, the huge Hornsea 1 offshore windfarm saw an 11% price increase, which will boost its revenue by nearly £100 million per year.[i] Hornsea 2, due to come on stream in 2024, had a price rise of 14%.

    With market prices for electricity now below £100 per megawatt hour, several windfarms have strike prices worth £209. There are several tidal power stations in planning which have been promised higher prices still. The Drax biomass power station has seen a 12% increase to £142.

    Commenting on the news, Net Zero Watch’s deputy director Andrew Montford said:

    For years, ministers and civil servants have been telling the public that renewables are cheap. Make no mistake, they have been engaged in a cynical deception of the British public.”

    [i] Hornsea 1 generated 4.7m megawatt hours in 2021/22. Its strike price has increased from £175 to £195/MWh.


  30. “Contracts for Difference Subsidies On The Rise Again”

    The renewable lobby were quick to brag that the Contracts for Difference scheme was paying back money to energy users last year, when market prices of electricity spiked. But they have remained strangely silent since, now that market prices have fallen back, with the result that the subsidy conveyor belt is now running again.

    In Q1 this year, subsidies for wind and solar power via CfDs totted up to £222 million, which will filter through on to our bills in months to come. Although onshore wind and solar still show negative subsidies of £9 million, offshore wind, which makes up 92% of the generation, gobbled up a subsidy of £231 million, with an average strike price of £166/MWh, compared to a market price of £120/MWh.

    In reality, the subsidy is much bigger than the official figures say. The Emissions Trading Scheme adds £31/MWh to market prices, by artificially increasing the cost of gas generation. The real, underlying market price is therefore about £89/MWh, meaning that the real subsidy under CfD is £167 million higher than shown.

    CfDs of course are just the tip of the iceberg, as far as subsidies go. The Renewable Obligation scheme will hand renewable generators about £6.8 billion this year, about 12% higher than last year thanks to indexation.


  31. “Call for Evidence on Non-Price Factors in the Contracts for Difference (CfD) Scheme”

    The Government has published a Call for Evidence on introducing non-price factors into the CfD Scheme. In recognition of the deployment challenges currently faced by the renewable energy industry, the Government is exploring whether to introduce non-price factors in the CfD auction.

    This Call for Evidence seeks views and evidence on whether potential reforms to the CfD, to value factors other than the price achieved in CfD auctions, could help accelerate renewable energy deployment and address energy security issues without impacting UK investment in the sector.

    The Call for Evidence is now open and will close at 11.45pm on 22nd May 2023.

    I’ll be interested to see how this pans out. I thought the Government was supposed to be looking at tightening what appears to be an incredibly lax scheme that effectively grants one-way options in favour of renewables companies, enabling them to enjoy the best – and the consumer to suffer the worst – of both worlds. Yet the wording of this consultation (“[i]n recognition of the deployment challenges currently faced by the renewable energy industry”) seems to me to suggest yet more favours might be coming the way of the renewables industry. Watch this space.


  32. Am I too sceptical? The Guardian sees things differently:

    “UK ministers review bidding process for funding new renewable energy projects
    Government wants to create more green jobs in response to Joe Biden’s Inflation Reduction Act package”

    Ministers are considering an overhaul of the bidding process to fund new renewable energy projects in an effort to create green jobs, amid Joe Biden’s subsidy race.

    The government said on Monday it has begun a review of the “contracts for difference” (CfD) scheme, which is used to determine the price of electricity from offshore wind and solar farms, with the aim of adding factors such as how many jobs they create to the regular auctions.

    But then the Guardian also says this (which I venture to suggest isn’t entirely true):

    Prices for consumers have consistently fallen as technology to build renewables projects has improved over the past two decades.

    And Ed Miliband is quoted as saying this:

    “Under the Tories, too many jobs in our renewable industries have been lost overseas. We need to learn from president Biden’s Inflation Reduction Act to deliver good jobs in our communities, but this government is refusing to do so.

    “Labour will seize this opportunity for Britain – creating good jobs, lowering bills and delivering energy security.”

    Dream on.


  33. Mark:

    “UK ministers review bidding process for funding new renewable energy projects
    Government wants to create more green jobs in response to Joe Biden’s Inflation Reduction Act package”

    But as one of our more vocal anti-establishment economists keeps reminding us – “Jobs are a cost”.


  34. The AR5 application window closes today. Applications are to be assessed between 25th April and 24th May. Watch this space.


  35. An interesting observation by Paul Homewood:

    “CfD Indexation To Cost Energy Users £360 Million This Year”

    The Contracts for Difference introduced by Ed Davey were poorly designed from the start, and are now costing energy users a fortune.

    We already know that the contracts place no obligation whatsoever on generators to actually take up their options, enabling them to take advantage of much higher market prices as a result.

    But just as costly has been the decision to index link strike prices each year for inflation. Given that most of the cost of a wind or solar farm is the capital cost, the indexation should only have applied to the operational cost.

    This year’s price rise took effect at the beginning of April, and for offshore wind farms averages 11.9%. (For some reason I have not got to the bottom of, the increases vary slightly between generators).

    This will cost energy users about an extra £360 million a year, based on last year’s outputs for all CfD generators. It puts the average cost of offshore wind up to about £175/MWh, compared to the current market price of around £100/MWh.

    Since 2019, prices have risen by about 23%, costing consumers around £700 million a year now in total.


  36. Behind a paywall, unfortunately, but I have seen how it starts:

    “Orsted postpones cheap energy contract”

    Orsted has delayed for a second year its contract to supply consumers with cheap energy from the world’s biggest offshore wind farm and has warned that it could do so again, enabling it to cash in on higher market prices instead.

    Hornsea Two, comprising 165 turbines about 55 miles off the coast of Yorkshire, has been fully operational since last summer, generating enough electricity to power 1.4 million homes.

    Under a government contract awarded in 2017, Orsted was due to supply the power to energy bill-payers at a fixed inflation-linked price worth just under £84 per megawatt-hour today, with the contract for the first phase of the project due to begin in 2022. However, the Danish state-backed power group confirmed last week that it has now taken advantage of a loophole to delay that contract start date for a second year, until 2024, enabling it to sell the power for higher prices instead…


  37. Quick, someone tell the Secretary of State – whoever it is this week – to phone Orsted and ask them nicely to take up their “contract”. I’m sure that will work.

    And £84/MWh is not cheap by the standards of the past decade, only the past year.

    Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.