UK removes block to onshore wind and PV

The UK Government is to remove its ban on funding onshore wind & solar PV via the Contracts for Difference subsidy system. If current plans are accepted, they will both be eligible for support in the next years CfD auction, and, depending on how the competition plays out, there could be 1GW going ahead- 700 MW of wind and 300 MW of solar in that round.  A big change from the dramatic slow-down caused by the constraints imposed by the government, with, longer term, up to 7GW of onshore wind projects being said to be ready to go ahead, and also 6GW of PV.

Other CfD changes are also proposed, including the creation of a new support framework for floating offshore wind and the extension of the CfD ‘delivery years’ to March 2030. But, with public support for solar at 85% and for on-shore wind at 78%, the U-turn on the CfD block to them, long called for, was the big news and it was widely welcomed, although Labour Energy Minister Dr Alan Whitehead said: ‘We now need to catch up on five lost years, remove the planning barriers to onshore wind energy this government put in place and look at the eye watering business rates they put on solar.’

Part of the original reason for the block to onshore wind and solar (local planning issues aside) was the fear that, as these options were booming, the green energy support arrangements were passing high costs on to consumers. However, that was now longer an issue, with on shore wind and PV becoming so cheap:  £33-34/MWh CfD prices look likely – cheaper than anything else.     

That underlined the rationale for the change in the government consultation document, although it was a little convoluted. While it was clear that onshore wind and solar were now cheap, there was ‘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. We expect that some of these technologies have the lowest costs and would be able to secure CfDs at strike prices below the average expected wholesale price for electricity, and so over the course of a contract may pay back as much, or more, than they receive in CfD top-up payments (based on current market forecasts). Therefore, running an allocation round in 2021 which includes established technologies will help deliver a diverse generation mix at low cost, as well as give a clearer signal of the costs of these technologies, several years on from the previous auction. In light of this the fourth CfD allocation round (AR4), scheduled for 2021, will therefore include auctions for both established (‘Pot 1’) and less-established (‘Pot 2’) technologies.’

Pot 2 includes offshore wind, along with wave, tidal, and geothermal, and some had said it should now be moved into Pot 1- since it was ‘well established’.  But although offshore wind was now more developed, it was still more expensive than the current Pot 1 technologies, and   the consultation asks whether it would be better to separate it out into a new Pot 3. Clearly the government is keen to keep it moving ahead, and floating offshore wind especially.

It says it is working with the wind sector seeking to deliver 30GW of offshore wind by 2030, but notes that ‘it is likely that higher levels of wind deployment will be needed to help the UK achieve its 2050 net zero target’. In addition to on-shore wind, that may mean moving into deeper water and to floating wind systems. It suggested ‘measures over the coming years to encourage early deployment and cost reduction. This would allow larger scale deployment to begin during the 2030s without a deployment hiatus which could jeopardise maintaining our decarbonisation trajectory and at lower cost than would otherwise be possible.’  More immediately, ‘to facilitate the acceleration of floating offshore wind projects to commercial deployment’, it proposes that ‘floating offshore wind is classified as a separate technology with a distinct administrative strike price, so that projects may compete in future auctions for ‘less established’ technologies’.  So it wants floating offshore wind projects to be able to successfully compete in the next CfD allocation round, subject to auction prices.

While floating wind and on shore wind move up the agenda, the government is proposing the exclusion of new coal-to-biomass conversions from future rounds of the CfD scheme. It says that ‘since the government’s 2012 Bioenergy Strategy we have been clear that coal-to-biomass conversions have been supported as a transitional, rather than long- term technology. Following on from a previous call for evidence on fuelled technologies in the CfD scheme, the government is now proposing to exclude new coal-to-biomass conversions from future CfD auctions as trailed in the 2019 Clean Air Strategy’. So, with conversion from coal in effect soon all having been done, there will be no more DRAX-type projects.

As can be seen, the government seems to be tinkering around with the CfD, adjusting it to meet changing strategic objectives. In some ways, that may be better than its earlier approach- constraining the growth of renewables (and their consumer cost pass-through) via CfD spending caps and technology exclusions.  A UKERC commentary noted that ‘previous auctions have been mainly limited by spending – contracts representing a certain amount of subsidy are offered, with the auction closing when the pot of cash has run out. Now the cost of these technologies are so cheap, this will no longer hold, with the only other option to limit according to a capacity cap. While this will allow observers to easily keep tabs on the rate of expansion of clean generating capacity, it also represents a greater degree of control over the electricity market, with the Government effectively controlling the make-up of the generation mix.’

So it is a contrived rather than open market. But it does mean that a more coherent pattern of development might emerge, not the stop-go, panic close-down pattern after over-spending pattern we have had so far. It might also allow some of the less developed options a chance to move ahead. If agreed, in the new CfD scheme, wave and tidal projects would no longer have to compete head on with offshore wind in Pot 2, and floating wind would get a chance to compete with currently cheaper fixed-seabed systems.  That may take some time to work through - but the government says it wants ‘to extend the CfD scheme delivery years until 31 March 2030,’ so there is some flexibility. Although also some urgency- we need all the renewables we can get.