The strike price for the sixth Contracts for Difference (CfD) allocation round will rise by 30% for solar next year, from £47 per megawatt hour (MWh) to £61/MWh.
This should deliver attractive rates of return for both the Treasury and developers, according to Solar Energy UK (SEUK) noting that an auction process may lower the final strike price.
“The Contracts for Difference system has been a major factor in the growth of the UK’s solar power sector by providing investors with a secure and reliable income,” said SEUK chief executive Chris Hewett.
“Solar remains the cheapest source of power in the UK, according to the government’s own figures, although lately installation costs have been affected by factors outside the control of the industry, notably the war in Ukraine.
“So it is gratifying that that the maximum bid price has been raised by a significant amount, which should bolster growth further towards reaching the capacity target of 70GW by 2035,” he added.
The cap for offshore wind went up 66% from £44 to £73/MWh, with less established floating offshore wind rising 52%, from £116 to £176/MWh.
While the rises are significant, renewable energy still offers far better value than investing in convention fossil-fuelled generation, not to mention offering substantial climate benefits, stated SEUK.
The costs of renewable energy have fallen sharply over the past decade and are “vastly lower” than that of building and operating combined cycle gas turbine generation.
Applications are scheduled to open on 27 March 2024, the winners to be made public in the late summer or autumn.
Alternatively, solar developers may seek a route to market through corporate power purchase agreements or through operating as merchant plants – risker, though potentially more financially rewarding.