CFD news

Two men in suits shaking hands across a large amount of money

Photo: Pixabay user Geralt; CC0 public domain.

Amidst all the attention that has been (rightly) focused on the US presidential election, the UK government has published something that has been long-awaited by the renewable energy industry: Details of the next round of Contract for Difference (CFD) subsidies. For anybody who wants to read the details themselves, they are here.

The first thing to note is that this is a very short-term measure; while the previous round, in 2014, covered the six-year period of 2015-2021 (that is only six – they’re financial years), this round is for just two more years of support from 2021-2023. So after all the uncertainty leading up to this announcement, we’ll still be begging for info again in not all that long.

In terms of technologies, onshore wind is gone as expected (and as per the Conservative manifesto commitment). There had been talk of making an exception for Scottish islands, and this hasn’t been totally abandoned, but it has been kicked into the long grass with another consultation. Offshore wind is in, with a strike price of £105/MWh that reduces to £100 later. That’s good – it’s the price that the offshore wind industry has been publicly aiming at, and they show every sign of meeting or exceeding it.

Tidal is in there as well, at £300/MWh (reducing to £295), which is probably a reasonable price… but there’s a catch. In the earlier round there had been a certain amount of capacity that was reserved for the more expensive, less-developed, technologies, but this time that is gone. There’s a total budget for payments of £290m/year, and if sufficient generators apply to use this up then the contracts will be auctioned off to the lowest bidders; and there’s no way that a tidal scheme can hope to complete with offshore wind on price right now.

I’m not sure exactly how this calculation is done, given that the subsidy costs of a development will depend both on the amount of energy generated and the market price for electicity at the time (remember that the government only pays the difference between the market price and the agreed price, not the whole lot), but in a very rough back-of-an-envelope sort of way I reckon that around 2-3GW of offshore wind capacity could use up that annual pot and leave nothing for tidal. That eventuality would be bad news, but even that possibility is probably bad news – because it means that rather than tidal developers and investors having certainty from the announcement date, they won’t know whether they have viable projects until the auction is held. I’m not sure whether any date for that has yet been announced.