Contracts for Difference auctions to become annual

Photo by Антон Дмитриев on Unsplash

Contracts for Difference (CfD) auctions are to be held annually rather than every two years, the government has announced.

According to the Department for Business, Energy & Industrial Strategy (BEIS), the increased auction frequency should benefit developers and the supply chain, as well as further supporting the UK in meeting its Net Zero and renewable electricity targets.

Business and Energy Secretary Kwasi Kwarteng commented on the announcement: “We are hitting the accelerator on domestic electricity production to boost energy security, attract private investment and create jobs in our industrial heartlands.

“The more clean, cheap and secure power we generate at home, the less exposed we will be to expensive gas prices set by international markets.”

CfDs are 15-year private law contracts between electricity generators and the Low Carbon Contracts Company (LCCC), a government-owned company that manages CfDs at arm’s length from government.

12 new contracts were awarded in the last allocation round, with the potential for nearly 6GW of further capacity. According to BEIS, this is enough to power over 7 million homes at record low prices and could see the creation of thousands of jobs across the UK.

In the Net Zero Strategy, the government committed to accelerating the deployment of low-cost, low-carbon electricity generation by reviewing the frequency of the CfD auctions.

BEIS reviewed the frequency of CfD allocation rounds, with ‘overwhelming support’ from the industry for more frequent and increased certainty on allocation round timing.

So far, the CfD scheme is reported to have supported around 16GW of new low-carbon electricity capacity, enough to power over 15 million homes.

A budget of £285 million has been set for the fourth CfD round, comprising £10 million for Pot 1, £75 million for Pot 2 and £200 million for offshore wind (Pot 3).

The final results of the fourth CfD auction round expected to be announced in spring/summer 2022.