UK government’s fourth round of renewable Contracts for Difference scheme opens

From the 13^th of December until the 14^th of January 2022, companies can bid for some of the £285 million a year funding available under the UK government’s flagship Contracts for Difference (CfD) scheme.

The government is hoping its fourth round of CfD will secure 12 GW of capacity. A total, which is more than the previous three rounds combined. Once successfully installed, the funding could stimulate electricity for up to 8 million UK homes, according to the government’s figures.

Kwasi Kwarteng, the UK’s Business and Energy Secretary, said, “By generating more renewable energy in the UK, we can ensure greater energy independence by moving away from volatile global fossil fuel prices, all while driving down the cost of new energy. Our biggest ever renewables auction opening today will solidify the UK’s role as a world-leader in renewable electricity, while backing new, future-proof industries across the country to create new jobs.”

For this round, the scheme is open to most renewable energy technologies, including fixed and floating offshore wind, onshore wind, tidal, and solar projects. The government has subdivided the £285 million, with £200 million available to offshore wind, £75 million to emerging technologies and £10 million to established technologies. Within those brackets, further subdivisions exist, including £24 million specifically for floating offshore wind, and £20 million to tidal projects.

For the first time since the original CfD auction in 2015, onshore wind and solar are again included in the scheme. The government is seeking an increased acceleration in capacity from these technologies to further diversify the generation mix and increase the robustness of supply. The £20 million for tidal projects represents a new start for this long-hoped for technology and could kick-off a new age for tidal stream electricity generation.

“The previous 3 rounds have allowed us to push forward with the Green Industrial Revolution and this round will take us further and faster than ever before while continuing to drive down costs for consumers.” Said Greg Hands, the UK Energy and Climate Change Minister. “The Contracts for Difference scheme is proof that green and growth go hand-in-hand as it continues to be a key driver behind the world-leading renewable energy sector that is providing us with secure clean energy, creating jobs across the UK and opening investment and export opportunities.”

The government attributes the almost 65% reduction in electricity unit price from auction one in 2015 to auction three in 2019 to the successful CfD scheme. Contracts for Difference are 15-year contracts between the government’s Low Carbon Contracts Company (LCCC) and electricity generators. In short, CfD’s fix an electricity per unit strike price. Providing suppliers with compensation when the unit price is lower than the strike price and requiring suppliers to pay money back when the strike price is exceeded. For reference, the 2015 auction saw the East Anglia One project with a strike price of almost £120, while RWE’s Sofia project had less than £40 MW/h in 2019.

LCCC CEO, Neil McDermott, said, “We’ve seen the scheme’s impact on diversifying and increasing the investment needed to support vital new low-carbon power… We’ve learned a fantastic amount to date and we stand ready to support the ambitious infrastructure that will power the UK’s transition to Net Zero emissions by 2050, as well as protecting the long-term health of our environment, economies and societies.”