The government is set to tighten up startup dates in a consultation on the future of the Contracts for Difference (CfD) mechanism for renewable energy.
The CfD regime currently allows for phasing of offshore wind projects but the government highlights several reasons to review this approach. It said indications from previous allocation rounds suggest phasing “may have been more about bid optimisation strategies rather than construction risk mitigation”. What is more it feared the flexibility could be used in ways that “contravene the spirit of the CfD” – specifically that project developers complete early phases and start generating on a merchant basis in order to take advantage of higher wholesale market prices in the short term. “In doing so, projects could potentially generate on merchant terms for several years (i.e. until the Longstop Date) before facing the possibility of contract termination”.
BEIS also wants to exclude offshore renewables projects from the CfD if they are used only to supply offshore oil and gas facilities. It says the ‘private wire’ arrangements for such schemes effectively subsidies their electrification at the cost of consumers. Projects that are also connected to the grid would be eligible for a CfD for energy exported to the grid.
The consultation also re-examines the definition of floating wind, reflecting fast development within the sector. It asks for views on whether and how repowering projects and offshore facilities that connect via an offshore grid or interconnector can be included in the scheme.
See the consultation here
The consultation, which closes on 6 February, follows shortly after the government published details of funding pots and administrative strike prices for Allocation Round 5, due in 2023 (see below).