UK: Contracts for Difference – Record £265M Draft Budget announced for Fourth Allocation Round

• Global

• Energy and infrastructure - Clean energy

14-09-2021

Yesterday, the UK Government published a Draft Budget Notice setting out a draft budget of £265 million for the fourth allocation round of the Contracts for Difference (‘CfD’) scheme which is to be held in December 2021.

The record-breaking £265 million budget is £200 million more than the previous CfD round (AR3) which had an overall budget of £65 million. Additionally, the cap on GW capacity for both less-established technologies and offshore wind, which were previously capped in the third round at 6GW, have been removed.

The increased budget and removal of two caps shows the Government’s ambition to greatly increase the UK’s share of renewable electricity and supports their aims of:

• doubling the renewable energy capacity secured in the third round
• supporting more renewable energy than the previous three rounds combined
• 40GW of offshore wind by 2030
• 1GW of floating wind by 2030.

Ben Brown, Principal Associate, comments: “The Government has made its 12GW ambition clear with this budget, with offshore wind unsurprisingly being the big winner, and floating wind securing some guaranteed capacity. The scene has been set for a budget (£) constrained auction for the offshore and less established pots, and what seems likely to be a capacity (GW) constrained auction for onshore wind and solar PV. We are interested to see which will be the new dominant Pot 2 technologies with offshore removed, and which (if any) of solar and onshore will take the majority of Pot 1, and whether the requisite monetary budgets and capacity budgets (including the minima for floating) are adequate to ensure competitive tension but also allow sufficient deployment.”

Summary

A breakdown of the overall draft budget is set out as below:

Pot 1: Established technologies (including onshore wind, solar, EfW with CHP, hydro, landfill & sewage gas)

• £10 million budget
• Cap of 5GW on total capacity
• Maximum capacity limits on 3.5GW imposed on both onshore wind and solar PV

Pot 2: Less-established technologies (including floating offshore wind, geothermal, remote island wind, ACT, AD, dedicated biomass with CHP, tidal stream, wave)

• £55 million budget
• No capacity cap
• £24 million ringfenced support for floating offshore wind projects

Pot 3: Offshore wind

• £200 million budget
• No capacity cap

Next steps

The final CfD budget notice is scheduled for November 2021, which may well include changes to the draft positions above in light of discussions with industry and sub-groups. At this time, the other statutory documentation (including the final allocation framework and CfD standard terms) will also be published. The CfD allocation application window for applicants to submit their CfD application and accompanying evidence/documentation is then expected from 13 December 2021, and depending on the extent of appeals, we can expect the auction to occur between early March and late May 2022, with results announced between late April and early July 2022.

CfD Bulletin Series

Onshore Wind and Solar PV return for next CfD auction, 4 March 2020 – which summarises the Government consultation regarding proposed changes to the CfD regime from AR4.
UK: Contracts for Difference consultation response, 25 November 2020 – which summarises the Government response to the consultation on proposed changes to the CfD regime from AR4.
UK: Call for Evidence on Enabling a High Renewable, Net Zero Electricity System, 17 December 2020 – which summarises the details of the Government’s Call for Evidence which invites comments on the future of the CfD.