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UK proposes CfD structure changes, reintroduces onshore wind and solar

Image by: Green Energy Markets (www.greenmarkets.com.au).

March 3 (Renewables Now) - The UK government on Monday unveiled certain changes it plans to make to the Contracts for Difference (CfD) scheme, including reopening the process to established technologies such as onshore wind and solar photovoltaic (PV).

The Department for Business, Energy and Industrial Strategy (BEIS) released a consultation that invites views on the structure of the next allocation round, which is expected to open in 2021. Some of the amendments include: making changes to the competition structure design; extending the delivery deadline until March 31, 2030; classifying floating offshore wind as a separate technology with a distinct administrative strike price; and excluding new coal-to-biomass conversions from future rounds of the scheme.

The government is proposing the changes in view of the ambitious clean energy target it pursues, specifically to achieve “an ultra-low carbon power sector” in order to reach net zero greenhouse gas emissions by 2050. As reported by the Committee on Climate Change (CCC), the UK needs to quadruple today’s renewable energy generation by 2050 to hit this target.

The CfD scheme is the main mechanism through which the UK government supports low-carbon electricity generation. To date, it has awarded contracts to about 16 GW of new renewable power capacity, including almost 13 GW of offshore wind.

The current structure design of the scheme involves grouping the competing technologies in two pots, categorising them as “established” and “less-established.” Pot 1 includes: onshore wind and solar PV above 5 MW; energy-from-waste projects with combined heat and power (CHP); hydro above 5 MW but below 50 MW; coal-to-biomass conversions; landfill gas and sewage gas. Pot 2, in turn, is dedicated to offshore wind; remote island wind above 5 MW; wave; tidal stream; advanced conversion technologies (ACT); anaerobic digestion (AD) above 5 MW; as well as dedicated biomass with CHP and geothermal.

One proposal is to keep this structure, only excluding coal-to-biomass conversions from Pot 1 and adding floating offshore wind in Pot 2. However, there is also an alternative option that involves the creation of a third pot to include only offshore wind.

In this case, Pot 1 will include: onshore wind and solar PV above 5 MW; energy from waste with CHP; hydro between 5 MW and 50 MW; landfill gas and sewage gas. Pot 2 will concern less established technologies such as: ACT; AD above 5 MW; dedicated biomass with CHP; floating offshore wind; geothermal; remote island wind above 5 MW; tidal stream; and wave. As already mentioned, the third plot will be dedicated to offshore wind.

As per the reintroduction of onshore wind and solar PV, the government acknowledges there are certain established technologies that have deployed or are planning to deploy on a merchant basis and notes that some of them would be able to secure contracts at strike prices below the average expected wholesale price for electricity.

The government says the following in its consultation document: “[...] there is a risk that if we were to rely on merchant deployment of these technologies alone at this point in time, we may not see the rate and scale of new projects needed in the near-term to support decarbonisation of the power sector and meet the net zero commitment at low cost.”

The consultation closes on May 22, 2020.

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Ivan is the mergers and acquisitions expert in Renewables Now with a passion for big deals and ambitious capacity plans.

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