Contracts for Difference (Miscellaneous Amendments) Regulations 2024
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Lord Hunt of Kings Heath
That the Grand Committee do consider the Contracts for Difference (Miscellaneous Amendments) Regulations 2024.
The Minister of State, Department for Energy Security and Net Zero (Lord Hunt of Kings Heath) (Lab)
My Lords, these regulations were laid before the House on 28 October. They form an important part of the Government’s commitment to accelerate the deployment of the low-carbon electricity technologies that are critical to achieving the Government’s clean energy mission.
The contracts for difference scheme is the Government’s main mechanism for supporting new low-carbon electricity generating projects in Great Britain. Contracts for difference are awarded through annual, competitive auctions where the lowest-priced bids are successful. The sixth allocation round, which ran earlier this year, was the largest round ever and more than double last year’s round held by the previous Government. It awarded contracts to 128 clean energy projects across Great Britain, capturing 9.6 gigawatts of renewable capacity and generating enough electricity to power the equivalent of 11 million homes.
We must, though, ensure its continued success and evolve the contracts for difference scheme to drive progress towards 2030. So, building on auction round 6, we want to update the scheme through this instrument to continue our march towards a low-carbon power system. We propose, first, to extend the option of phased contracts for difference to floating offshore wind projects and, secondly, to enable the eligibility of repowered onshore wind projects to apply for a contract for difference.
On the first point, the Government have committed to radically increasing the UK’s offshore wind capacity, including floating offshore wind. As an emerging technology with less than 250 megawatts of capacity deployed worldwide, the floating offshore wind construction process is yet to be industrialised. Floating wind projects are likely to have a slower buildout rate than established fixed-bottom offshore wind, for reasons including limitations on suitable port capacity and increased sensitivity to adverse weather.
Phasing in the contract for difference allows projects to be built in multiple stages. It was designed to provide support for early fixed-base offshore wind projects by mitigating the specific commercial risks inherent in offshore project construction. Extending this policy to floating offshore wind projects will allow for greater flexibility in the construction phase, allowing delivery to more realistic timelines and providing more certainty and confidence to the wider supply chain. This reduction in project risk will, in turn, increase investor confidence in the UK’s growing floating offshore wind sector.
On the second amendment—to enable repowering for onshore wind—our analysis suggests that approximately 1 gigawatt of onshore wind will come to the end of its operating life between 2027 and the end of 2030. Repowering can help ensure that renewable generation capacity is not lost from older projects. It also provides an opportunity to increase the renewable generating capacity of existing sites through improvements in technology and more efficient use of the site. Enabling access to the contract for difference for repowered onshore wind projects offers them revenue certainty, encouraging retention and expansion of existing capacity. This supports our ambition to achieve clean power by 2030 and make Great Britain a leading place for onshore wind investment.
We have ensured a balance between decarbonisation, consumer value for money and security of supply objectives by enabling repowering only for projects which align to the fundamental contract for difference case for intervention, including high upfront capital costs, and which have reached the end of their operating life. At this point, this applies only to onshore wind. These principles will help enable us to protect the consumer, ensuring we intervene only when and where needed and where it is cost-effective to do so.
The consultation for these policy interventions sought views and supporting evidence on specific changes proposed for allocation round 7. We received a range of responses from across industry, including developers, electricity traders and suppliers, businesses operating in the offshore wind sector, and consumer and environmental groups with an interest in the electricity sector. Most respondents agreed with implementing phasing for floating offshore wind and repowering for onshore wind. Respondents also provided input on how the department should implement these policies. The department continues to engage closely with industry in the development of contracts for difference.
The instrument facilitates the evolution of the contracts for difference scheme by amending two statutory instruments made under the Energy Act 2013. It amends the Contracts for Difference (Allocation) Regulations 2014 and the Contracts for Difference (Definition of Eligible Generator) Regulations 2014. The amendments will have two effects. First, they will expand the existing phasing policy to floating offshore wind projects. The allocation regulations will be amended to allow floating offshore wind contracts for difference units to be constructed in accordance with phasing rules. The second effect is to permit repowered projects to apply for a contract for difference. The contracts for difference scheme did not previously have a formal policy in relation to repowering applications. The amendments ensure that certain generators who repower eligible generating stations can be eligible for the contract for difference. They also remove barriers which would prevent repowering applications being made.
To conclude, we think this is an important step forward in delivering clean power. It builds on the existing success of the contracts for difference scheme, which is evolving to better reflect global market realities and drive progress towards clean power targets. I beg to move.
Earl Russell (LD)
My Lords, I rise to speak very briefly to this one. We are happy to support the amendment.
I have a couple of questions for the Minister. First, what measures are the Government taking to ensure that consumers continue to get value for money from these contracts? Secondly, is the Minister certain that the repowering process is treading the right path between getting value for money for the Government with these contracts, while not impeding further development of onshore wind energy?
Lord Hunt of Kings Heath (Lab)
I thank noble Lords for their support, which is encouraging. I readily acknowledge that we are building on the work that the last Government undertook, and I think we are entitled to say that this has been very successful. It is very good to build on it.
I say to the noble Earl, Lord Russell, that obtaining value for money is clearly an important issue. The clearing price for ONW was £50.90 per megawatt hour, meaning that it was our second-cheapest technology after solar. We think that the repowering policy will likely increase the amount of ONW bidding into the contracts for difference. This will increase competitive tensions further—unlike the resulting lower bid prices, which should lead to consumer savings. Generally, as I said, upwards of 1 gigawatt of onshore wind is clearly due to reach the end of its operating life at the end of government support by the end of 2030. It makes sense that we try to ensure that this is extended.
To hark back to the nuclear question, we are obviously awaiting EDF’s formal announcement about an extension of life, potentially, for some of the existing nuclear power stations. I take this as a whole and, where it is right to do so, some support for extending the life of some of these operations is worth while.