UK: First Contract for Difference (CfD) auction results announced

• United Kingdom

• Energy and infrastructure - Clean energy

26-02-2015

The first CfD allocation auction round outcome has been published today, with 27 contracts worth £315million being offered to projects which cover deliver over 2GW of renewable energy across England, Scotland and Wales.

Key messages

The key messages from the auction are:

• the dominance of onshore wind in the “established technologies” pot – only 72MW of solar PV was awarded a CfD (5 projects) compared to approx 750MW of onshore wind;
• the two large scale solar PV projects awarded contracts for the 2015/16 delivery year obtained a strike price of £50, which is significantly lower than the solar PV administrative strike price of £120/MWh;
• the majority of the “less established technologies” budget was taken up by two large offshore wind projects: (i) 714MW EA1- Scottishpower Renewables (UK) Limited; and (ii) 448MW Neart na Gaoithe - Neart na Gaoithe Offshore Wind  Limited; and
• no dedicated biomass with CHP projects were awarded a CfD.

The CfD auction announcement is disappointing for the solar PV industry, but it will not come as a surprise. Whilst some solar projects have shown that they can compete in the auction, the vast majority of potential solar projects for the next few delivery years did not get awarded a CfD. The process raises questions over the viability of the CfD regime for small and medium enterprises (SME) and we may see many SME developers exiting the market.

We would expect that the next auction will include even more onshore wind and thereby even more competition for solar PV, as less and less projects become viable under the Renewables Obligation and have to seek a CfD. The early indications that we are getting from onshore wind clients is that a strike price of around £80 is acceptable, but much lower than this would not be workable. The importance of interest and exchange rates in relation to the strike price should also not be ignored, given that the project time lines will likely extend into periods of possible interest/exchange rate change which could impact on the viability of any prices agreed.

The sector is particularly concerned to understand more about which bidders were unsuccessful and why. Without this information, stakeholders will struggle to gauge the viability of the CfD opportunity and the extent to which they should engage/commit resources in the future.

Details of the projects awarded as follows:

Click here for the DECC auction notice.

Next Steps

Successful bidders will receive CfD contracts from the Low Carbon Contract Company over the next 10 days, and will need sign the contracts before 27 March 2015.

If you require any further information, please contact:

Jean-Pascal Boutin
Partner
Tel: +44 292 047 8265
jeanpascalboutin@eversheds.com

Michelle T Davies
Head of Clean Energy and Sustainability Group
Tel: +44 292 047 7553
michelletdavies@eversheds.com

Simon Davies
Associate
Tel: +44 29 2047 7033
simondavies@eversheds.com

Eversheds was awarded ‘Legal Advisor of the Year’ and Michelle T. Davies was named ‘Solar Woman of the Year’ at the 2014 Middle East Solar Awards.

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