Amending CfDs for AR7 and beyond – key takeaways from the government’s response

On 18 October 2024, the government published its response to its consultation on amendments to Allocation Round 7 (“AR7”) and future rounds of the Contracts for Difference (“CfD”) scheme. This article outlines the key takeaways from the government’s response document.

Fully repowered onshore wind 

The government will be legislating to allow projects will full repowering models to apply for a CfD. For the next allocation round, only onshore wind projects will be eligible but government will continue to assess the eligibility of other technologies such as offshore wind and solar PV for future rounds.

The government will retain the requirement that projects have reached the ‘end of operating life’ using power generation cost assumptions. For example, an onshore wind project will qualify for repowering support if it commenced commercial operation 25 years before the delivery years of the next allocation round. The government have clarified that this 25 year period can include the time for decommissioning and recommissioning of the new project on site.

For the next allocation round, the government will not require repowering projects ‘to at least retain current capacity over the term of the contract’, recognising that ‘there are commercial incentives to maximise the capacity of the repowered site and that where repowering does not result in at least retaining capacity this should be due to legitimate barriers such as changes in site ownership or difficulties in configuring site assets with geography.’  The need for this requirement will continue to be reviewed to ensure it does not encourage less innovative forms of repowering i.e. the risk that due to the current connection queue, developers use their existing grid connection and repower cheaply with older turbine models.

The government will also allow repowering projects to forward bid for a CfD so projects can apply for a CfD where still operational, provided they intend to fully repower in line with their CfD delivery date.

Floating offshore wind

The government will extend the CfD phasing policy currently in place for fixed-bottom offshore wind to floating offshore wind (“FLOW”) projects in the next allocation round. CfD phasing is designed to de-risk the overall construction process by allowing projects to be built out in multiple stages that each have their own CfD. FLOW projects will be able to build in up to three phases to reduce construction risk, provided they are under 1.5GW in size.

Additionally, the government will not be making changes to the definition of FLOW for the next allocation round although it ‘still considers it important to develop a long-term solution to the question of floating offshore wind definition that does not preclude CfD support for viable, novel solutions to the deployment of offshore wind in deep waters.’

Hybrid metering

The consultation examined changing metering to make it easier for CfD generators to co-locate with other assets. This included considering an approach that would permit CfD generators to measure their metered output (used to calculate CfD difference payments) at a sub Balancing Mechanism Unit level whilst co-located alongside other assets.

The government has decided however that it will not implement hybrid metering in the CfD scheme before ‘it is clear how such assets would be treated in the wider system’. Hybrid metering will therefore not be implemented in the next allocation round but will be considered further.

Bootstraps and offshore wind multi-purpose interconnector (OFW-MPI) arrangements

The consultation considered solutions which could improve the coordination of offshore transmission infrastructure and thereby reduce the number of individual connections from offshore to the UK coast.

The government will undertake further work to clarify the costs of bootstrap-connected projects and as a result cannot confirm at this stage if such projects will be eligible in the next allocation round. For OFW-MPIs, the government remains of the view that these projects will be eligible for a CfD in principle under a standard CfD contract. It is however unable to commit to CfD eligibility or a specific CfD framework before there is further clarity on a MPI policy framework and REMA options on CfD design and locational pricing arrangements.

CfD indexation

The consultation considered if CPI-linked CfD indexation should be revised to better reflect inflation risk in view of recent commodity price volatility. The government has however concluded to continue with the current approach and retain full CPI-linked CfD indexation. 

Appeals

The government does not intend to amend the grounds for appeal nor introduce a pre-qualification process with appeals before formal application ahead of the next allocation round. The government has however noted respondents’ preference for a fixed timeline for the appeals process and will publish a fixed timeline for appeals from 2026 onwards.