The Department for Energy Security and Net Zero (DESNZ) has recently published proposals for reforms to the Contracts for Difference (CfD) scheme, to take effect for Allocation Round 7, which is expected to open for applications in March 2025.
These are the proposals for Allocation Round 7:
Repowering of onshore wind
The Government is seeking to incentivise the full repowering of existing onshore wind assets under the scheme. The Government sees numerous benefits to full repowering, such as supporting decarbonisation of the power system in a timely manner and preventing the loss of low carbon electricity supply.
The Government also proposes the option of forward bidding under AR7 for repowering projects, which would allow generators to apply for a CfD while the wind farm is still operating – thereby avoiding the costs and delays associated with decommissioning before applying for a CfD (under the current CfD framework, an application cannot be made for a CfD asset that has already been commissioned).
The Government considers that the current appeals process causes uncertainty around delivery timescales – adding months of delay to the publication of auction results.
The Government wishes to streamline the process – by introducing a pre-qualification process and moving the qualification checks and appeals process to before the round opens to applications – adopting the approach currently used for the Capacity Market. That would result in a fixed timeline, with auction results released approximately two months after the close of applications.
Phased CfDs for floating offshore wind
Currently under the scheme, fixed-bottom offshore wind farms can be built out in 3 phases, with each phase having its own CfD Agreement. The Government proposes offering phasing to floating offshore wind farms too, to help de-risk the construction process and lower the cost of capital to help improve the sector's commercial viability and development – which in turn is hoped will enable the Government meet its target for up to 5GW of floating offshore wind by the end of the decade.
Co-located generation and hybrid metering
Under current guidance co-location of electricity storage and hydrogen production is permitted as long as they are metered at the Balancing Mechanism Unit (BMU) level under the Balancing and Settlement Code (BSC). Government recognises that this approach can lead to onerous and complex metering requirements to separate merchant and CfD generation, does not allow for optimisation of grid connections and prevents co-located battery storage from being operated in the most effective way for providing ancillary services. Government proposes to allow CfD generators to meter electrical output at a sub-BMU level for the purposes of calculating CfD difference payments while co-located alongside other assets.
The consultation is open for comments until 7 March 2024.
If you need advice in relation to the CfD scheme, our team of energy specialists can assist who regularly advise a wide range of clients on this – please contact Russell Evans or James Stanier to discuss how we could help you.