Government launches consultation on amending CfDs for AR7 and future rounds

The government is seeking views on potential amendments to Allocation Round 7 (“AR7”) and future rounds of the Contracts for Difference (“CfD”) scheme.

This article looks at the proposals in the consultation that could be delivered in time for AR7 as well as what is being considered for future allocation rounds. The consultation assumes delivery years for AR7 will be 2027-2030.

What key changes is the government considering for AR7?

• Repowering: Allowing onshore wind projects with full repowering models to apply for a CfD in AR7, subject to conditions including projects not being in receipt of any other generation subsidy by the end of their applicable delivery year. Full repowering is defined as ‘decommissioning and recommissioning of the existing site, incurring similarly high upfront capital costs to that of a new build’. To support this, the government is considering forward bidding to allow a generator to apply for a repowering CfD whilst still operational, provided they intend to fully repower in line with their CfD delivery date. -
• Floating offshore wind: Applying the CfD phasing policy to floating offshore wind projects as per fixed-bottom offshore wind projects. CfD phasing is designed to de-risk the construction process, particularly in the ‘proof of concept’ stage, by allowing projects to be built out in multiple stages that each have their own CfD. -
• Co-location generation and hybrid metering: Changing metering to make it easier for CfD generators to co-locate with other assets. The government is considering a hybrid metering 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.

What about future CfD rounds?

• Supporting innovation in floating offshore wind foundation technology: Amending CfD regulations to ensure that eligibility requirements do not preclude new and innovative foundation technologies. This includes considering if the definition of ‘floating offshore wind’ is a barrier to newer foundations which do not technically ‘float’. -
• Improved coordination of offshore transmission infrastructure: Considering solutions which can reduce the number of individual connections from offshore to the UK coast. Examples include multi-purpose interconnectors which allow offshore wind farms to share key infrastructure with interconnectors and ‘bootstraps’, large HVDC offshore cables which connect onshore substations to others further along the coastline. -
• CfD indexation: Reviewing if CfD indexation should be revised to better reflect inflation risk. CfDs are currently CPI-linked but the government is looking for alternatives in light of recent commodity price volatility which is expected to continue in the short to medium term. Examples of alternatives include indexing strike prices to the Producer Price Index in the CfD construction phase, whilst retaining CPI-indexation during the operational phase.

The consultation closes on 7 March 2024 with AR7 expected to open to applications in March 2025.

Conclusion

The consultation reflects continued support for offshore wind and floating offshore wind projects as key technologies in a 2035 decarbonised power sector. The government’s recognition of repowering as a supportable route for continuing onshore wind deployment will also be welcomed by the industry although many will argue that support for new build projects remains tenuous, despite the recent easing of planning restrictions. Repowering projects will still need to be mindful of the parameters of their existing planning consents.

The government is also currently reviewing responses to its consultation on the introduction of the CfD Sustainability Reward from AR7, which aims to reward projects which take action to increase the economic, environmental and social sustainability of offshore wind deployment.

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Our Clean Energy Waste & Sustainability team has extensive experience advising on the CfD scheme. Please get in touch if you would like to discuss what the proposed changes might mean for existing CfD assets and newer technologies.