UK government exploring reforms of its renewable energy auction scheme

April 17, 2023, by Amir Garanovic

The UK government is seeking views on introducing contracts for difference (CfD) reforms, which could reward applicants for including wider benefits their projects could bring when submitting price bids to government for their low-carbon electricity.

Illustration/SIMEC Atlantis' tidal energy turbine (Courtesy of SIMEC Atlantis)

A major reform to the UK government’s flagship renewables scheme that could help drive further investment in renewable energy deployment and improve energy security is being explored in plans set out on April 17, 2023.

Currently, the CfD is awarded based on the bid price submitted by renewable energy generating stations, such as an offshore wind farm – the aim being to increase deployment and ensure good value to electricity consumers and, over time, drive down costs.

The government is now seeking evidence and views about reviewing applications not just on their ability to deliver low-cost renewable energy deployment, but also based on how much a renewable energy project contributes to the wider health of the renewable energy industry.

These reforms could see applicants considering overall costs alongside other ‘non price factors’ – such as supply chain sustainability, addressing skills gaps, innovation and enabling system and grid flexibility and operability – when submitting their bids, which could help drive investment in the sector, grow the economy and boost the country’s energy security.

According to the government, more investment in supply chain sustainability, for example, would help to reduce its carbon impact and access the resources and materials it needs to deploy sustainability at scale in the longer term. Investment to address the skills gaps would help to train the technicians needed to deploy ever larger renewable energy generation stages.

Graham Stuart, UK’s minister of state for Energy Security and Net Zero, said: “Our flagship CfD scheme has been hugely successful in supporting British low-carbon electricity generation, while also driving down costs for the benefit of consumers.

“But we want to go further to ensure we maximize the scheme’s potential to improve energy security and ensure renewable energy developers can make the necessary investment in supply chains and innovation, which will ultimately make for a stronger sector and help our economy to grow.

“This potential reform to the scheme to introduce non-price factors presents a solution to grow the renewable energy supply chain as we accelerate our energy transition plans to power more of Britain from Britain.”

If, following this ‘call for evidence’, appropriate changes to the CfD scheme have been identified and deemed more effective than other potential policy levers, the government said it will launch a consultation on more detailed proposals. 

CfDs have already helped accelerate plans to diversify, decarbonize and domesticate our energy supplies, with the last round (AR4) securing almost 11GW of low carbon capacity – enough to generate sufficient electricity to power 12 million British homes.

Last month, the government committed a further budget of £205 million (€232 million) to the scheme for the fifth allocation round (AR5), confirming another year of significant financial backing by government for green industries and jobs.

CfD reform to unlock wider industrial benefits of renewables

Commenting on the publication of a call for evidence by the UK government on reforming CfD scheme, RenewableUK’s executive director of policy Ana Musat said:

“Designing the right framework for Contracts for Difference is absolutely crucial if we’re to attract the billions of pounds of private investment we need to build more clean energy projects faster – at the very time when international competition for capital and expertise has never been more intense.

“Going forward, it’s clear that awarding CfDs shouldn’t just be based on a race to the bottom on prices, but it should also take account of the wider economic and environmental benefits which this industry can deliver. So we’re advocating a sustainable approach on prices to support long-term industrial growth, innovation and supply chain development.

“This would enable us to maximize the economic benefits which this industry has to offer, including creating tens of thousands of high-quality jobs over the course of this decade.”