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UK: Contracts for Difference: Allocation Round 3 results

  • United Kingdom
  • Energy and infrastructure - Clean energy

24-09-2019

The auction will see contracts for difference (CFDs) offered to 5.8GW of new generation, with the biggest winners unsurprisingly being offshore wind, and the newly added Scottish remote island wind projects winning four contracts (representing around 275MW). The other two successful projects were advanced conversion technologies (ACT) (representing only around 33MW).

This third round auction has received mixed reviews, mostly due to the record low clearing price:

• £39.650/MWh for the c. 2.86GW due to be commissioned in Delivery Year 2023/24

• £41.611/MWh for the c. 2.9GW due to be commissioned in Delivery Year 2024/25

This is a marked fall in prices since the second round results, which were £74.75/MWh for the earlier projects (DY2021/22) and £57.50/MWh for the later projects (DY2022/23), representing a nearly 30% reduction. The third round also procured 2.4GW more energy than the second round, against a much lower budget.

Some analysis suggests that this could represent a net gain for consumers, which would (if proved correct) represent a shift to ‘subsidy free’ or ‘zero subsidy’ projects. This is because the strike price is below the current wholesale price, meaning the developers would return the difference to the CFD counterparty, Low Carbon Contracts Company (LCCC).

Many may see this as a positive step for the renewable sector, confirming that the cost of investing in low carbon technologies is at a record low and paving the way towards decarbonising the UK energy industry to achieve zero emissions by 2050. However, it has also renewed talk of whether offshore wind is now an established technology, and should be moved to “pot 1”, which has not run since the first CFD auction, which would leave the other ‘less established’ technologies (such as geothermal, tidal and wave) to compete amongst themselves.

The table below sets out those who were successful: