UK low-carbon generation support auctions to be held yearly: BEIS

UK contracts for difference (CFD) auctions are to be held yearly rather than every two years in future, with the next round scheduled to open in March 2023, the Department for Business, Energy and Industrial Strategy said Feb. 9.

Over the past six years, CFDs have supported 16 GW of low-carbon generation, including 13 GW of offshore wind. The 15-year contracts pay a top-up premium on a reference wholesale price up to an agreed strike price.

"The auction scheme has already proved successful at bringing down the cost of offshore wind by around 65% over the past decade -- helping the UK become one of the world's largest generators of wind power," BEIS said.

Increased auction frequency should improve market visibility for developers and the supply chain as the UK's target 40.00 GW offshore wind installed by 2030, up from 10.46 GW today.

"We are hitting the accelerator on domestic electricity production to boost energy security, attract private investment and create jobs in our industrial heartlands," BEIS minister Kwasi Kwarteng said.

"We need build up to 4 GW of new offshore wind capacity every year to stay on track for net zero, which means quadrupling our current annual rate," said Dan McGrail, CEO of sector association RenewableUK.

The UK's latest, fourth CFD allocation round closed on Jan. 14, 2022.

Investment bank Credit Suisse said the round was likely to clear 13-14 GW of wind, solar and other technologies at GBP33-40/MWh (2012 prices), "equivalent to GBP42-52/MWh in 2025 price levels".

In its latest long-term EU power report published Dec. 16, S&P Global Platts Analytics projected British power prices (2020 real) to fall from over Eur95/MWh (GBP80/MWh at current exchange rates) in 2023 to just below Eur50/MWh in 2030.

The CFD mechanism requires contracted generators to pay money back to suppliers, and therefore consumers, if wholesale prices exceed strike prices.

That happened for the first time for a full quarter in Q4 2021 after power prices rocketed on the back of rising gas feedstock and carbon costs.

Expected net payments from CFD-backed generators over the quarter totaled GBP133.7 million, according to the state-owned Low Carbon Contracts Company.