The UK Government is considering major reforms to its Contracts for Difference (CfD) scheme to help drive further investment in renewable energy deployment.
Currently, CfDs are awarded based on the bid price submitted by developers. The government is now seeking evidence and views about reviewing applications not just on their ability to deliver low-cost renewable energy deployment, but also on how much a project contributes to the wider health of the sector.
These reforms could see applicants considering overall costs alongside other “non price factors” – such as supply chain sustainability, addressing skills gaps, innovation and enabling system and grid flexibility and operability – when submitting their bids.
More investment in supply chain sustainability, for example, would help reduce its carbon impact and access the resources and materials it needs to deploy sustainability at scale in the longer term, Whitehall said.
Investment to address the skills gaps would help to train the technicians needed to deploy ever larger renewable energy generation stages, it added.
Minister of State for Energy Security and Net Zero Graham Stuart (pictured) said: “Our flagship Contracts for Difference scheme has been hugely successful in supporting British low-carbon electricity generation, while also driving down costs for the benefit of consumers.
“But we want to go further to ensure we maximise the scheme’s potential to improve energy security and ensure renewable energy developers can make the necessary investment in supply chains and innovation, which will ultimately make for a stronger sector and help our economy to grow.
“This potential reform to the scheme to introduce non-price factors presents a solution to grow the renewable energy supply chain as we accelerate our energy transition plans to power more of Britain from Britain.
“This Call for Evidence is part of our work to continue to evolve the CfD scheme as we consider long-term market arrangements through the Review of Electricity Market Arrangements (REMA).”
The government is exploring introducing non-price factors into the CfD auction allocation process following recommendations made in Chris Skidmore’s Net Zero Review and the report earlier this month from the Offshore Wind Champion Tim Pick.
If, following this Call for Evidence, appropriate changes to the CfD scheme have been identified and deemed more effective than other potential policy levers, the government will launch a consultation on more detailed proposals.
RenewableUK’s executive director of Policy Ana Musat said in response to the news: “Designing the right framework for Contracts for Difference is absolutely crucial if we’re to attract the billions of pounds of private investment we need to build more clean energy projects faster – at the very time when international competition for capital and expertise has never been more intense.
“Going forward, it’s clear that awarding CfDs shouldn’t just be based on a race to the bottom on prices, but it should also take account of the wider economic and environmental benefits which this industry can deliver.
“So we’re advocating a sustainable approach on prices to support long-term industrial growth, innovation and supply chain development.
“This would enable us to maximise the economic benefits which this industry has to offer, including creating tens of thousands of high-quality jobs over the course of this decade.”