Onshore wind and grid-scale PV is needed to meet the UK’s ‘Net Zero’ target and should be supported in the Contracts for Difference allocation, government has conceded. In a new consultation on changes to the scheme BEIS said “There is a risk that if we were to rely on merchant deployment of these technologies alone at this point in time, we may not see the rate and scale of new projects needed in the near-term to support decarbonisation of the power sector and meet the net zero commitment at low cost.” The government plans to hold the next allocation round in 2021 and will extend the delivery years to 2030.
Among other important changes, the consultation proposes to reinstate onshore wind and PV in the CfD ‘Pot 1’ for established technologies. And it asked for views on creating a ‘Pot 3’ for fixed offshore wind, as it argues that the dramatic fall in offshore wind prices means it is no longer appropriate to include it in ‘Pot 3’ for less established technologies. It proposes to maintain the previous cap on phased offshore wind projects at 1,500 megawatts (MW) “to strike a balance between economies of scale and facilitating new entrants to the market”.
Floating offshore wind would remain in Pot 2, classified as a separate technology with a distinct administrative strike price.
BEIS says that there are limitations – environmental, radar interference, conflicting uses – on how much fixed offshore wind can be deployed and says “it is likely that the commercial deployment of floating offshore wind will be needed sooner than previously anticipated and at greater levels, particularly during the 2030s.” It also sees opportunities for floating offshore wind as a useful power source for deep-water oil and gas fields and, importantly, as a UK export. It says, “this could create export opportunities for the UK should floating wind deploy in countries which have limited shallow water sites (for example Japan and west coast USA).”
It also notes that there are diversity benefits for the UK system because floating wind opens up new offshore areas where the wind patterns are different. However, it is not clear whether one energy vector under discussion – to generate hydrogen on site at floating wind farms – would be supported by the requirement for plant to be electrically connected to a substation.
BEIS has decided to exclude biomass conversions from the allocation. It argues that this has been described as a transitional technology for several years and in any case all conversion contracts end in 2027. It notes that biomass conversions can participate in the Capacity Market.
Covering the liability
Among other proposals in the wide-ranging consultation, BEIS wants to expand the supply chain requirement (which requires a proportion of UK content) to encompass all technologies and apply it to projects smaller than 300MW (the current threshold). It seeks input on how the Supply Chain Plan policy can be strengthened to ensure it remains fit for purpose.
It also wants to tighten up on the requirement for a decommissioning plan, which has to be submitted with the CfD bid and is intended to protect taxpayers from the cost of government becoming the “decommissioner of last resort”, for costs estimated at £1.28-3.64 billion for plant in operation or under construction by the end of 2017.
BEIS says many plans have required “a number of revisions” before they are acceptable and it wants to improve their quality. In addition, requirements for decommissioning provisions are devolved to consenting authorities in Scotland and Wales, and in Scotland the requirement to make financial provision is also devolved. BEIS wants input on how to ensure that liability is covered.
Among technical changes, BEIS is considering changing from a ‘hard’ to a ‘soft’ capacity cap, that can be applied to maximise value for money – for example if a large project breaches the cap but would result in a lower price than excluding it in favour of smaller, more expensive, projects that do not breach the cap.
Proposals around power export include ceasing payments when power prices are negative (which currently applies after six hours) – intended to incentivise operators to generate when it is beneficial to the system. BEIS said, “CfD generators being insulated from wholesale market signals on the value of their generated power offers greater certainty for investors but limits the incentives for generators to export power in accordance with the needs of the system,” and asked for evidence on how it would affect the system. It is also looking again at how co-located storage is treated.
See the full consultation here