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.
Next:
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?
Postscript
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…?
Endnotes
i https://www.gov.uk/government/publications/contracts-for-difference/contract-for-difference
ii https://www.bbc.co.uk/news/science-environment-60325908
iii https://questions-statements.parliament.uk/written-statements/detail/2022-02-09/hcws600
iv https://www.gov.uk/government/news/government-hits-accelerator-on-low-cost-renewable-power
Climate Scepticism 
“I wonder why they didn’t mention 2021’s lousy statistics?”
I know, I know ….
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Joe Public, thanks for that – it rounds the article off nicely. 🙂
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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: https://www.gov.uk/government/publications/contracts-for-difference-cfd-allocation-round-3-standard-terms-and-conditions
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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.
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Per unit price has come down by about 65 percent? What is that in “shitloads”?
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I have just posted this comment at “Where Did All The Green Jobs Go?”
cliscep.com/2021/09/08/where-did-all-the-green-jobs-go/#comment-114645
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:
https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/finalestimates/2020
[Link to the comment fixed Mark. I put the following duplicate comment into ‘Pending’. — Richard]
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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):
https://www.cfdallocationround.uk/longest-timeline
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.
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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
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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.”
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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.”
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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
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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.”
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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:
https://www.gbnews.uk/news/wind-farms-earn-hundreds-of-millions-more-from-energy-crisis-after-delaying-government-subsidy-contract/285252
And at Paul’s place:
https://notalotofpeopleknowthat.wordpress.com/2022/05/02/wind-farms-earn-hundreds-of-millions-more-from-energy-crisis-after-delaying-government-subsidy-contract/
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.
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While CfDs allow energy companies to play fast and loose, and the Government begs them to “play fair”, meanwhile the bureaucrats are having a whale of a time. I don’t pretend to understand it, let alone to think that any of it will do much if anything to protect the end users – us, the paying customers:
https://www.gov.uk/government/consultations/contracts-for-difference-cfd-proposals-for-changes-to-supply-chain-plans-and-cfd-delivery
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Latest update regarding CfD AR4:
https://www.cfdallocationround.uk/news/allocation-round-4-update-appeals-process-completed
Also:
“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”
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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
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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.”
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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.”
https://www.gov.uk/government/news/biggest-renewables-auction-accelerates-move-away-from-fossil-fuels
Click to access contracts-for-difference-allocation-round-4-results.pdf
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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 gov.uk 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.
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“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”
https://www.theguardian.com/environment/2022/jul/08/price-offshore-wind-power-falls-cheapest-ever-level-uk
“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:
https://www.netzerowatch.com/new-data-on-offshore-wind-costs/
“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.
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“Major renewables boost as three isles wind farms given subsidy”
https://www.shetnews.co.uk/2022/07/07/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.”…”.
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“Government publishes Supply Chain Plan questionnaire”
https://www.cfdallocationround.uk/news/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).
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BEIS has just issued this:
“Contracts for Difference, Supply Chain Plan for Allocation Round 5
Your Questions and Answers, September 2022”
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.
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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?
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“Considerations for future Contracts for Difference (CfD) rounds”
https://www.gov.uk/government/consultations/considerations-for-future-contracts-for-difference-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.
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Meanwhile, maybe worth a read:
“Methodology used to set Administrative Strike Prices for CfD Allocation Round 5 ”
Click to access cfd-ar5-asp.pdf
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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”
https://renews.biz/82627/beis-cracks-down-on-cfd-start-date-delays-ahead-of-auction/
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.
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Confirmation of “Allocation Round 5 Launch Event”:
https://www.cfdallocationround.uk/news/allocation-round-5-launch-event
Those differences are referred to here:
https://www.cfdallocationround.uk/news/ar5-publications-and-future-cfd-consultation
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The latest timescale is now in:
“Contracts for Difference Allocation Round 5: Indicative timetable scenarios”
https://www.cfdallocationround.uk/contracts-difference-allocation-round-5-indicative-timetable-scenarios-0
Provisional timetable details are here:
Click to access AR5%20indicative%20timetable%20-%20all%20scenarios%20-%20.pdf
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“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
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.
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“Allocation Round 5 Opens”
https://www.cfdallocationround.uk/news/allocation-round-5-opens
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.
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“The great renewables rip-off continues”
https://www.netzerowatch.com/the-great-renewables-rip-off-continues/
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“Contracts for Difference Subsidies On The Rise Again”
https://notalotofpeopleknowthat.wordpress.com/2023/04/14/contracts-for-difference-subsidies-on-the-rise-again/
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“Call for Evidence on Non-Price Factors in the Contracts for Difference (CfD) Scheme”
https://www.cfdallocationround.uk/news/call-evidence-non-price-factors-contracts-difference-cfd-scheme
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.
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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”
https://www.theguardian.com/business/2023/apr/17/uk-bidding-renewable-energy-green-jobs-joe-biden
But then the Guardian also says this (which I venture to suggest isn’t entirely true):
And Ed Miliband is quoted as saying this:
Dream on.
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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”.
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The AR5 application window closes today. Applications are to be assessed between 25th April and 24th May. Watch this space.
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An interesting observation by Paul Homewood:
“CfD Indexation To Cost Energy Users £360 Million This Year”
https://notalotofpeopleknowthat.wordpress.com/2023/05/01/cfd-indexation-to-cost-energy-users-360-million-this-year/
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More from Paul Homewood about CfD indexation:
“CfD Indexation Is A Rip Off”
https://notalotofpeopleknowthat.wordpress.com/2023/05/02/cfd-indexation-is-a-rip-off/#more-63973
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Behind a paywall, unfortunately, but I have seen how it starts:
“Orsted postpones cheap energy contract”
https://www.thetimes.co.uk/article/orsted-delays-cheap-energy-contract-hsztcrg28?
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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.
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From the latest CfD Stakeholder Bulletin:
The following link leads to a download for those interested in arcana:
https://www.lowcarboncontracts.uk/publications/cfd-co-location-generator-guidance
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CfD AR5 update:
It would be interesting to know more about the appeals received by Ofgem. Unfortunately the update doesn’t provide that information.
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From today’s bulletin:
Surely that’s an acknowledgement that, far from CfDs being good for consumers, under CfDs consumers subsidise the renewables companies? We have to subsidise them, but we can’t subsidise them when providing electricity supplied to offshore [oil & gas] platforms. That wouldn’t be “green”, I suppose…..
Supply Chain Plan Guidance is also now available:
Click to access cfd-ar6-scp-guidance.pdf
It sounds good, in principle:
However, (and I may be wrong) I can’t see anything in it that will ensure the creation or maintenance of “green” jobs in the UK. It looks like a load of box-ticking bureaucracy to me.
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The gravy train just keeps growing. Here’s the latest announcement regarding the CfD AR5:
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“UK windfarm red tape to cost billpayers £1.5bn a year, say analysts
Analysis finds Treasury rules on new windfarms likely to stifle energy generation and keep bills high”
https://www.theguardian.com/environment/2023/aug/17/uk-new-offshore-windfarms-treasury-rules-bills-analysis
The analysis seems completely deluded. The evidence is that renewables are requiring greater subsidies and that renewable energy companies are increasingly shouting that they need more help. Some are starting to show substantial losses and are experiencing financial and other difficulties generally. As for the ECIU, it might describe itself like this:
The reality, IMO anyway, is that it is an organisation that lobbies for more renewable energy. Given that he who pays the piper calls the tune, its sources of funding are very significant, I would suggest:
I would regard every one of those as climate alarmist organisations.
Robin Guenier might like to note that his MP, Bim Ofalami, is a member of its advisory board. His short biography at the ECIU is as follows:
Given that he is a net zero champion, I suspect that Robin has his work cut out in trying to persuade him to take a sensible view of UK energy policy.
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“Europe’s Biggest Offshore Wind Market is Heading For Disaster
Rising costs may mean no developers bid in this year’s auction
Offshore wind is centerpiece of UK’s net zero targets”
https://www.bloomberg.com/news/articles/2023-08-17/uk-green-agenda-faces-another-hurdle-as-offshore-wind-stumbles
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“The real costs of wind power prove the sums don’t add up
The chasm between net zero ambition and reality is growing ever larger”
https://www.telegraph.co.uk/business/2023/08/30/renewable-energy-net-zero-britain-wind-power-costs/
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“Offshore wind expecting to lose out in auction for UK financial help
Energy industry experts say steep rise in costs could result in few projects submitting bids”
https://www.theguardian.com/business/2023/sep/07/offshore-wind-expecting-to-lose-out-in-auction-for-uk-financial-help
Excuse me? “Crucial government support”? “Surging costs”? I thought this stuff was cheap, and that the Guardian is always telling us we need more of it to bring bills down. It’s not true, of course.
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More on the imminent failure of the CfD AR5:
“UK offshore wind auction set to flop”
https://www.bbc.co.uk/news/business-66740920
Paul Homewood is also reporting on a similar version of the story in the Times:
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And now the failure of CfD AR5 is official:
“UK renewable auction flops with no new contracts for offshore wind projects – business live”
https://www.theguardian.com/business/live/2023/sep/08/uk-renewable-auction-contracts-offshore-wind-energy-stock-market-business-live
Of course, it’s all the government’s fault (they certainly bear a large degree of responsibility for taking the UK down this road), and the usual suspects are wailing and gnashing teeth. The Guardian can’t resist repeating (even if only a quote) the old lie (albeit slightly modified now) that “for a time, offshore wind farms were 9 times cheaper than new gas plants.”. It wasn’t true then, and it isn’t true now:
The quote comes from Sam Richards, founder and campaign director of Britain Remade. Well, as for them:
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Here’s the Government spin:
“Record number of renewables projects awarded government funding
Flagship renewables scheme set to deliver 3.7GW of clean homegrown energy, enough to power the equivalent of 2 million homes.”
https://www.gov.uk/government/news/record-number-of-renewables-projects-awarded-government-funding
Here’s NetZero Watch’s rather more realistic appraisal:
“Dismal UK CFD auction result”
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So much for renewables being cheap:
“First floating wind farm in Wales delayed over funding”
https://www.bbc.co.uk/news/uk-wales-66748924
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Mark, that Welsh floating wind project was named after HMS Erebus, a ship with a famously disastrous ending and whose name has always meant ‘gloom’, plus the project is run by a company with ‘Blue’ in its current and former names. One might almost wonder whether the project was ever meant to succeed or whether it was just something proposed by execs at its ultimate owners – TotalEnergies, the dastardly oil magnates formerly known as Total – when they were a bit bored and blue in early 2020.
I wouldn’t bet on the floating wind farm ever being completed but it’ll probably get UK govt grants for a few more years yet.
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“Does the UK government still have an offshore wind strategy?
Nils Pratley”
After the failed auction, ministers must accept that the workhorse of their renewables plan isn’t as cheap as it once was”
https://www.theguardian.com/business/nils-pratley-on-finance/2023/sep/08/does-the-uk-government-still-have-an-offshore-wind-strategy
Obviously I disagree with the claim that offshore wind is likely to be cheaper than gas when the hidden costs of coping with wind’s intermittency are taken into account. That aside though, it’s a pretty good article, inasmuch as it demonstrates that the Government is seriously adrift with regard to UK energy policy.
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This Guardian “explainer” piece is away with the fairies:
“What went wrong at UK government’s offshore wind auction?
Industry sources say auction was ‘catastrophic’, after failure to secure any new offshore windfarms”
https://www.theguardian.com/environment/2023/sep/08/what-went-wrong-at-uk-governments-offshore-wind-auction
What’s of interest to me is the claim that:
Even if true (which I doubt) £24 per household is a drop in the ocean compared to the costs every household pays to subsidise renewable energy. Although those costs aren’t mentioned, everyone associated with UK energy policy) (and, I suspect, the Guardian’s editors) is well aware of those costs, so in effect that paragraph is an admission that the net effect of UK energy policy and its tilt to renewables and net zero is costing us all a lot of money.
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Mark,
The claim that the failure to secure more offshore wind contracts will drive up bills for consumers is pure propaganda, but it’s being repeated across the board by Renewables cronies, notably Greenpeace and Ed Milliband, the shadow Energy Secretary. ‘Catastrophic’ will have REAL meaning when this dangerous eco-zealot, responsible in no small measure for the Climate Change Act 2008, finally gets back into power at the next election. We thought the fake Conservatives were bad.
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“Wind industry on hold after auction flop spooks developers
Bosses warn that lack of state support risks undermining Britain’s overall net zero goals”
https://www.telegraph.co.uk/business/2023/09/17/wind-industry-on-hold-after-auction-flop-spooks-developers/
Lack of state support, eh? I thought the line was that we need more renewables to save us money, not cost us.
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“UK prepares to hike wind farm prices as developers struggle”
https://www.energyvoice.com/renewables-energy-transition/wind/uk-wind/541063/uk-prepares-to-hike-wind-farm-prices-as-developers-struggle/
So, not cheap after all. What will it take to stop this?
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A press release from Net Zero Watch today:
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The Guardian has the story too. When it’s trailed this widely, it looks as though it’s likely to come about:
“UK subsidies for offshore windfarms likely to increase amid rising costs
Developers say higher prices across their supply chains mean costs have climbed by about 40%”
https://www.theguardian.com/business/2023/nov/10/uk-subsidies-for-offshore-windfarms-likely-to-increase-amid-rising-costs
So much for “cheap” renewables.
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An utterly delusional self-congratulatory press release, when they should be hanging their heads in shame:
“Boost for offshore wind as government raises maximum prices in renewable energy auction
Maximum price that other renewables projects can receive in the next Contracts for Difference (CfD) auction has also been raised.”
https://www.gov.uk/government/news/boost-for-offshore-wind-as-government-raises-maximum-prices-in-renewable-energy-auction
Of course, to the average reader, this represents disinformation, since the figures quoted are all at 2012 prices. Offshore wind, after inflation, in 2023/4 prices will be circa £100 per Mwh (with index-linking built in going forward).
Further details on the prices on offer (NB at 2012 prices – the effect of inflation must be added on) can be found here:
“Contracts for Difference (CfD): Core Parameters for the sixth allocation round, 2024”
Click to access ar6-core-parameters-notification.pdf
The real detail regarding AR6 can be found here:
Click to access draft-ar6-allocation-framework.pdf
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Why put all our eggs in the renewables basket when wind speeds seem to be in decline?
“‘Unfavourable’ weather hits wind power production at SSE
The energy company said a rise in offshore wind generation has not been enough to offset a big fall from onshore wind farms.”
https://www.expressandstar.com/news/uk-news/2023/11/15/unfavourable-weather-hits-wind-power-production-at-sse/
Still, with a Uniparty both in charge, and in waiting in the form of the opposition parties, they have nothing to worry about:
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And in the Netherlands …
https://brusselssignal.eu/2023/11/dutch-energy-prices-double-amid-green-transition/
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Paul Homewood on the latest developments:
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“World’s largest offshore wind farm to be built in UK waters
Boost for Government’s net zero plans as Ørsted agrees to press ahead with £8bn project”
https://www.telegraph.co.uk/business/2023/12/20/worlds-largest-offshore-wind-farm-gets-go-ahead-off-uk-coas/
Translation: “offshore wind power is not 9 x cheaper than gas – far from it. In fact it’s very expensive. So expensive that when the Government finally tightened up the toothless CfD regime, it received no bids for offshore wind farms last time round. Panic ensued, and now Orsted has obtained promises of lots of subsidies from the useless, spineless UK government”.
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“Government publishes Allocation Round 7 consultation”
That’s from the Government email. The link online can be found here:
https://www.gov.uk/government/consultations/proposed-amendments-to-contracts-for-difference-for-allocation-round-7-and-future-rounds
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“Government Subsidies for Wind Power Hit Record Levels”
https://dailysceptic.org/2024/01/13/government-subsidies-for-wind-power-hit-record-levels/
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AR6 budget: Government gives major backing to renewables sector
https://www.cfdallocationround.uk/news/ar6-budget-government-gives-major-backing-renewables-sector
“The Government has confirmed a budget of over £1 billion for Allocation Round 6 (AR6) of the Contracts for Difference (CfD) scheme.
The budget was announced as part of the Chancellor’s Spring Budget this afternoon.
It is the largest budget to be set for a CfD allocation round and will help to ensure that the scheme continues to support delivery of the UK’s ambitious decarbonisation commitments….
…The Budget Notice sets out that the overall budget will be £1,025m – with £120m allocated to established technologies, such as solar and onshore wind (Pot 1); £105m allocated to emerging technologies, such as floating offshore wind and geothermal (Pot 2); and £800m allocated to offshore wind (Pot 3).
The Pot 1 budget of £120m includes monetary maxima for onshore wind, solar and remote island wind of £120m each. The Pot 2 budget of £105m includes an £8m monetary maximum for geothermal and ringfenced support (a monetary minimum) of £10m for tidal stream projects. The Pot 3 budget of £800m includes monetary maxima for ‘permitted reduction’ and new offshore wind projects of £800m each….
…Budgets are presented in 2011/2012 prices in line with convention of the scheme and to enable comparison across rounds. These figures are an estimate of annual support in the most expensive year in the first four years, across all three auction pots, following deployment. Actual annual figures will vary over the lifetime of the contract depending on future wholesale electricity prices and outcomes of the competitive auction process….”
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“Government publishes response to AR6 contract changes consultation”
The Government has today published the response to the Allocation Round 6 (AR6) contract
changes consultation alongside the final contract documents for the round.
The response confirms changes to make generators that directly supply offshore oil and gas
facilities ineligible for the Private Network CfD Agreement from AR6 onwards, implementing
the government’s previous decision on this matter.
It also confirms that the definition of Milestone Delivery Date (MDD) has been amended to
allow the MDD to be extended where a generator has not received confirmation from the
Ministry of Defence of the availability of suitable mitigation measures in relation to interference
between windfarms and air defence radar systems.
Other confirmed contract changes concern strengthening ‘Know Your Customer’ checks and
introducing a new threshold for the Change Control Procedure.
“
AR7: Government publishes response to Sustainable Industry Reward consultation”
The Government has today published its response to the consultation on introducing a CfD
Sustainable Industry Reward (SIR).
The response confirms that the CfD SIR process will run for three years from Allocation Round
7 (2025) onwards as a competitive allocation for extra revenue support. The SIR process will
take place six months before the main CfD auction, and applicants will need to meet minimum
standards to gain access.
Some key aspects of the proposed SIRs have been amended to simplify the process. The
number of criteria has been reduced to two, and there are now only three questions. The
criteria for SIRs will be:
a) Investment in shortening supply chains in deprived areas in the UK; or
b) Investment in more sustainable means of production anywhere in the world; or
c) A combination of both approaches by investing in shorter supply chains in UK deprived
areas and ensuring that such investment goes to more sustainable means of
production.
I’m not sure there is anything new here, but I include it for the sake of ongoing completeness.
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“Why this week’s wind power auction could be a make-or-break moment in the UK’s net zero journey”
https://www.cityam.com/why-this-week-could-be-a-make-or-break-moment-in-the-uks-net-zero-journey/
“…Despite being the second-largest offshore wind market in the world currently, the UK sector is facing something of a confidence crisis, built by the bruising taken in the last two auction rounds.
The energy sector’s number one criticism going into both of these rounds and in their post-mortems was that there wasn’t enough funding to create an attractive development incentive for companies to invest in and prove the net zero target to remain viable.
And now, even though the investment has been upped to £800m, there are still huge concerns that this will not be sufficient to bring the five would-be developers; SSE Renewables, Vattenfall, Orsted, ScottishPower Renewables and RWE, and their combined 12.2GW of capacity to market.
Gavin Watson, an energy partner at law firm Pillsbury, Winthrop, Shaw and Pittman, said AR6 is a “watershed moment” for the industry.
“Whilst AR6 has all the makings of an auction round fit for success, this is not the end of the story,” he told City A.M.
“Continued supply chain bottlenecks, expected spikes in steel demand and inflationary pressures are threatening to create significant headwinds for successful bids.
“Constrained cable supply is perhaps the most pressing supply chain challenge facing the industry in the short-term and with limited manufacturing capacity in a world rushing to electrify, these cables are likely to remain in short supply for many years to come.”
Adam Berman, deputy director of Energy UK, added: “2030 is fundamentally not far away when it comes to lead times on offshore wind and net zero.
“It is critical the government approaches AR6 with high ambition and should there be significant projects bidding in so the government should be prepared to increase the budget according to how many projects are available.”…”
In other words – give us money, and lots of it, or else. So much for this stuff being cheap and enhancing our energy security.
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“Net Zero Watch brands new windfarm subsidy ‘obscene’”
Green Volt project could be handed annual half billion pound subsidy
Net Zero Watch has revealed the astonishing scale of subsidies likely to be received by a windfarm planned for Scottish waters. The Green Volt floating offshore windfarm could hand its backers around £500 million pounds per year in subsidies. The project received official approval from Marine Scotland last week.
Because it is a floating windfarm, it is eligible for a much higher level of subsidies than fixed-bottom or onshore windfarms. At the launch of the most recent subsidy auction, the Government announced that it had raised the maximum price for floating windfarms to around £240 per megawatt hour [1], around four times current market prices. If the whole windfarm is subsidised at this level, consumers will probably have to pay more than £500 million per year in subsidy [2].
Net Zero Watch director Andrew Montford said:
Notes for editors
[1] In 2024 prices. Contracts for Difference are awarded in 2012 prices and then uplifted for inflation. The price announced for offshore capacity was £176/MWh, equivalent to £243 in current pries.
[2] Subsidy at this level would require Greenvolt to be successful in several consecutive CfD auctions.
[3] Based on the capacity factor achieved by the extant Hywind floating windfarm
[4] Approximate average since start of February.
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