The UK Government has made transforming the energy sector a priority in its strategy to position Britain as a global clean energy leader. In the four months since the general election, progress includes the creation of GB Energy, a state-owned clean energy company, the transition to the National Energy System Operator (NESO), and proposed reforms to simplify grid connections.
Building on this momentum, the Government has outlined significant changes to the Contracts for Difference (CfD) scheme following a recent consultation. These reforms, effective from Allocation Round 7 (AR7) onwards, aim to improve the scheme’s performance. This follows mixed outcomes, including the lack of offshore wind awards in AR5 and the success of AR6, which allocated £1.5 billion to 131 projects with a combined 9.6 GW capacity. These changes demonstrate the Government’s commitment to advancing renewable energy in the UK.
Introduction: Paving the Way for a Cleaner Future
The UK Government has reaffirmed its commitment to global clean energy leadership. Significant reforms to the Contracts for Difference (CfD) scheme, along with initiatives like GB Energy and the transition to National Energy System Operator (NESO), aim to strengthen Britain’s renewable energy sector. These updates, effective from AR7, focus on promoting clean energy technologies and addressing key challenges within the sector.
Understanding the CfD Scheme
Contracts for Difference (CfDs) are long-term agreements designed to reduce market price risks for low-carbon electricity generators. Operated by the Low Carbon Contracts Company (LCCC), CfDs guarantee a fixed “strike price” per unit of electricity, adjusted annually for inflation.
Key features include:
- Strike Price Stability: Fixed through competitive auctions and indexed annually.
- Market Protection: Ensures generators are compensated when market prices fall below the strike price, while protecting consumers if prices exceed it.
- Decarbonisation Goals: Supports the UK’s carbon neutrality targets, improves energy security, and aims to reduce consumer energy costs.
What’s New for AR7? Key Changes and Updates
1. Floating Offshore Wind Projects (FLOW): A Phased Approach
From AR7, the phased development approach, previously limited to fixed-bottom offshore wind, will apply to FLOW projects. Phased development reduces delivery risks and enables the use of deeper waters with better wind resources. Initial rules for FLOW projects are similar to fixed-bottom wind, including a 1,500 MW cap and a three-phase maximum. These policies will be reviewed over time.
2. Support for Repowered Onshore Wind Projects
Repowering projects, involving the complete decommissioning and replacement of existing wind farms with mo
- Repowering projects, where old wind farms are replaced with new technology, will now qualify for CfDs. Developers can apply under standard terms if the projects meet certain criteria, including:
- High upfront capital costs.
- A minimum operational lifespan of 25 years for the original asset.
- Forward bidding before decommissioning existing projects.
This change is expected to increase renewable capacity and extend the life of ageing wind farms.
3. Streamlined CfD Appeals Process
From 2026, a fixed timeline for appeals will simplify the process, improving transparency and efficiency.
Looking Ahead: Future Considerations for the CfD Scheme
Hybrid Metering for Co-Location Projects
Hybrid metering, allowing co-location with other assets like battery storage, was explored but has been deferred. Further evaluation of market integration and regulatory adjustments is needed.
Indexation of Strike Prices
The Government will maintain the current Consumer Price Index (CPI) linkage for strike prices, despite concerns over exposure to commodity price volatility before investment.
Offshore Transmission Infrastructure
- Bootstraps: Recognised as a potential avenue for CfD eligibility, but clarity on associated costs and regulatory frameworks is required.
- Multi-Purpose Interconnectors (MPIs): While CfD eligibility for MPIs was considered, further policy reviews are needed to assess feasibility within the CfD framework.
Conclusion: A Step Forward for Renewables
The CfD scheme continues to evolve, reflecting the Government’s commitment to strengthening the renewable energy sector. From expanding eligibility for repowered onshore wind projects to introducing phased development for FLOW, these reforms aim to replicate the success of AR6 in AR7.
Ongoing evaluations of hybrid metering, offshore infrastructure, and strike price indexation show the Government’s continued focus on tackling the challenges of transitioning to a cleaner, more secure energy system.
Notes to Editors:
Contact Information:
- This article is written by Jules Daly, Marketing and Communications Manager at Powersystems.
- Email jules.daly@powersystemsuk.com Telephone 01454 318000
- Photography Copyright please credit all images used to powersystemsuk.co.uk
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Since 2000, Powersystems has successfully connected over 6.1 gigawatts of renewable energy to the UK electricity grid. Our projects span many sectors from onshore and offshore wind, solar energy, tidal and hydroelectric power, electric vehicle infrastructure, as well as generation installations for short-term operating reserves (STOR), combined heat and power (CHP), grid stability initiatives such as rotating stabilisers, battery energy storage systems (BESS), and commercial industrial private wire networks.
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