In April 2023, the Department for Energy Security and Net Zero announced a new consultation on major reforms to its Contracts for Difference (CfD) scheme, which is the government’s mechanism for supporting new low-carbon electricity generation projects, such as offshore wind and solar photovoltaic (PV) farms.
Currently, CfDs are awarded based on the bid price submitted by renewable energy generators. They have been seen as a key way to encourage the development of more homegrown renewable energy.
However, recent market conditions and increased commodity prices have led to calls for a reform of the CfD scheme so the UK remains a leader in the development and deployment of low-carbon energy.
In the new consultation, the government is proposing that additional ‘non-price’ factors are also taken into consideration, which it says will help drive further investment in renewable energy deployment and improve energy security. This comes in response to recommendations made by Chris Skidmore MP in the Net Zero Review earlier this year.
These non-price factors could include:
- Supply chain sustainability
- Generation capacity building
- Innovation addressing skills gaps
- Enabling system flexibility and operability
The consultation has been welcomed by key figures in the industry, with Adam Berman, Deputy Director for Advocacy at Energy UK, saying:
“If designed appropriately, the inclusion of new factors in the CfD could improve investment certainty for low carbon projects, boosting energy security as well as ensuring that all parts of the UK benefit from the jobs, skills, and supply chain opportunities these multi-billion pound investments bring.”
What does this mean for owners and operators of energy generation assets?
The new consultation which closed on Monday 22 May 2023, looked for views on how the inclusion of non-price factors could work. This includes ideas on potential mechanisms for implementing non-price factors into CfD auctions, and which non-price factors should be valued in the auction process. Further information can be found here.
It will be of particular interest to companies that already own, or are considering developing, low-carbon energy projects in the UK. Therefore, this is an opportunity for energy generators to have their say on the future of the CfD scheme, and help increase the deployment of renewable energy in the UK.
If you have any questions about this, or anything to do with energy generation, please contact our team.
