The Department for Energy Security and Net Zero (DESNZ) launched a consultation on proposals for the next Contracts for Difference (CfD) allocation AR7 which we summarised in February. DESNZ has now published its responses to that consultation covering proposals for the next round but also further proposals for future rounds for industry stakeholders to consider.

For the next round, DESNZ proposed changes to the repowering of existing onshore wind asserts, changes to the appeals process, co-located generation and hybrid metering. For future rounds, stakeholders were asked for their views on innovations for CfDs, "bootstraps", multi-purpose interconnectors (MPIs) and updates to indexation.

Repowering

The Government clarified that it would fully implement its proposal for full repowering and that projects would not be required to at least retain current capacity for AR7 (but this criterion will be kept under review for future rounds). The "end of operating life" definition using power generation cost assumptions as part of repowering applications will remain, but the definition will include the period of time required to decommission and re-commission. The technology eligibility criteria, as further detailed in the response, will be as proposed by DESNZ. They still consider that only onshore wind meets this criteria but, again, other technologies will be considered for the future. Finally, repowering projects will also be able to forward bid from the next allocation round, pending changes to the relevant legislation.

Appeals

The Government does not intend to pursue the introduction of a pre-qualification process nor to amend the grounds of appeal. However, respondents sought fixed timelines for the appeals process with the assumptions that Tier 1 and Tier 2 processes would take place, so DESNZ intends to implement a fixed timeline for appeals from 2026 onwards via legislation.

Co-located generation and hybrid metering

Stakeholders' responses highlighted a number of potential challenges with hybrid metering such as the interaction between hybrid metering and the Balancing Mechanism, final demand sources and offshore wind. Given the uncertainty on how those will financially and practically work and the fact of some of these points are being dealt with in other consultations, DESNZ will not implement hybrid metering for AR7.

Phased CfDs for floating offshore wind

Phasing, which is currently in place for fixed-bottom offshore wind, will be implemented for floating offshore wind with the current fixed-bottom offshore wind rules along with the 1.5GW cap to be used initially for AR7. DESNZ will keep this policy under review, including whether to extend it to other technologies.

Considerations for the future

A number of suggestions by respondents were reviewed such as an Administrative Strike Price for other technologies and defining established fixed-bottom offshore wind. The Government has said it will not make changes for the current allocation round but will keep potential innovations under review. The Government has also said that offshore wind multi-purpose interconnectors could be possible for CfD but they are still considering numerous points such as design options through the ongoing REMA programme. DESNZ has committed to using CPI (Consumer Price Index) over PPI (Producer Price Index) for indexation on CfDs. Finally "bootstraps", large offshore subsea High Voltage Direct Current (HVDC) cables connecting one onshore substation to another onshore substation further along a coastline, may be included in allocation rounds beyond AR7 but DESNZ will keep stakeholders updated.

Next steps

The Government will continue to review the points above in relation to rounds beyond AR7. If you have any questions around CfDs then our team of Energy experts can help. Please contact James Stanier or Russell Evans for more information.