Contracts for Difference

Michael Shanks Excerpts

Monday 28th October 2024 Written Statements

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Michael Shanks)]

I would like to advise the House that today I am laying draft regulations to implement two amendments to the Contract for Difference (CfD) scheme in time for the next allocation round, supporting the Government’s clean energy superpower mission to deliver clean power by 2030 and accelerate to net zero.

The CfD scheme is the Government’s main mechanism for supporting new low-carbon electricity generation projects in Great Britain. Awarded through regular, competitive allocation rounds, it guarantees a set price per megawatt-hour of electricity for 15 years, indexed to inflation. The income stabilisation that it provides for the generator makes projects that have high up-front costs but long lifetimes and low running costs attractive to investors and lenders, reducing the cost of capital and overall project cost. It also protects consumers when electricity prices are high.

The latest allocation round, AR6, was a great success, securing a record-breaking 131 projects and 9.6 GW of renewable electricity capacity. But we must continually evolve the CfD scheme to drive progress towards the 2030 clean power target and ensure that it reflects the global challenges and opportunities faced by the renewables sector.

These amendments to legislation will extend the option to phase projects under the CfD to floating offshore wind and enable repowered onshore wind projects to apply for a CfD, provided they meet certain criteria.

This Government have committed to radically increasing the UK’s offshore wind capacity. Floating offshore wind is an emerging technology that allows us to access wind resource in deeper waters, which tend to be further from shore and have higher, more consistent wind speeds. CfD phasing policy allows offshore wind projects with a maximum capacity of 1,500 MW to be built in up to three stages. Previously this only applied to fixed-bottom offshore wind. The extension of phasing to floating offshore wind will benefit this emerging sector, de-risking the construction process and helping developers and the supply chain to work with more certainty. This, in turn, will reduce investment risk and enable the construction of larger floating windfarms, as investors gain confidence in successful project completion.

The other amendment concerns onshore wind. From the late 2020s onwards, it is likely that a significant proportion of current onshore wind sites will reach the end of their operational life. When a project comes to the end of its operating life, the generator can choose to decommission permanently, extend its life, or repower. Repowering would require decommissioning and recommissioning of the existing site, incurring similarly high up-front capital costs to that of a new build. Allowing projects to apply for a CfD to repower, in contrast to retiring, could make a significant contribution to the 2030 clean power goal. This amendment offers revenue certainty for onshore wind projects that may otherwise struggle to repower. Without it, we may lose the opportunity to retain and increase this renewable capacity and the societal and economic benefits this confers.

This draft legislation laid today is another important step forward in delivering clean power, shielding families from volatile gas prices and establishing the UK as a clean energy superpower.

[HCWS168]