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93 individual projects across Britain won contracts in the last allocation round. Image: pxfuel.
The Department of Business, Energy and Industrial Strategy (BEIS) has launched a consultation into key changes to the Contracts for Difference (CfD) scheme.
This looks to gain stakeholder feedback on changes to the Standard Terms and Conditions and Private Network Agreement for Allocation Round 5 (AR5), which is set to run next summer.
Launched on Monday (19 December), the consultation will look to clarify how the flexibility in the contract for generator to delay their CfD start date should and shouldn’t be used.
This follows reports that the Moray East Offshore Wind Farm delayed taking up its CfD – which it won in the 2017 auction – earlier this year in order to benefit from the high wholesale electricity prices.
At the time, research from Cornwall Insight suggested there was a "significant commercial incentive" for delaying the CfD, with strike prices for offshore wind in 2017’s Allocation Round 2 being set at £73.71/MWh and £94.81/MWh (both prices in current money).
By comparison, the Intermittent Market Reference Price (IMRP), which is used to determine CfD payments in each hour for offshore wind farms, averaged £187.42/MWh since the start of 2022 up to 14 May.
Of the 3,190 hourly periods from the start of the year to 14 May, the IMRP has been higher than £73.71/MWh in 3,072 (96%) and higher than £94.81/MWh in 2,892 (91%) of them, highlighting the opportunity of delaying a CfD.
BEIS called on generators to act “fairly” in response to Moray East Offshore Wind’s decision to wait to take up its CfD in order to benefit from high wholesale prices in the short term.
The first point in the new consultation seems to look to alter the regulation of the CfD’s to avoid similar situations going forwards.
Beyond this point, the consultation is also seeking views on:
- Simplifying data provision requirements for generators
- Updating the definitions used in the CfD Private Network Agreement
- Updating interest rate calculations for repaying cumulated subsidy following Brexit
- Removing the BSUoS (Balancing Services Use of System) charge clauses, as Ofgem will not levy these charges on generators from April 2023
- Reflecting the new supply chain plan requirements for floating offshore wind projects
Solar power projects will again be able to bid into the CfD auction, with the application window for AR5 set to open in March 2023.
AR4 was the biggest and most diverse CfD ever, with 93 individual projects across Britain winning contracts, with a total capacity of almost 11GW of clean energy supported.
This included 66 solar projects with a total capacity of 2.2GW winning contracts, as the technology competed for the first time since 2015.
The high power prices seen over the last year have seen existing projects developed with CfDs paying back, with £300 million paid over six months over the last winter period, and £1 billion forecast to be paid back between April 2022 and March 2023.
Analysis from the Energy and Climate Intelligence Unit in July, suggested that the contracts awarded in AR4 would save £7 billion on electricity costs under the wholesale prices seen in the current crisis.