Contracts for Difference scheme - second wind for established technologies

"Established" and "Less Established" Energy Pots

As set out below, various renewable energy technologies are categorised into 'pots', with the more or less established technologies in their respective pots competing against each other at auction in any given CfD round. However, established technologies have not been permitted to participate in CfD auctions since the first round in 2015, which explains why the proposal to run an established technologies/Pot 1 auction in 2021 has made headlines. In justifying its decision to support these technologies again after a 6 year hiatus, the government stated that “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.”

BEIS proposes to tweak, rather than overhaul, the Pot definitions:

• The consultation considers whether offshore wind should be in its own, third pot, reflecting the differences in scale and investment costs from other technologies in either Pot 2 (where offshore wind currently sits) or Pot 1. Offshore wind won 6 of the 11 contracts awarded in the third allocation round, leaving little space for other technologies, with fewer economies of scale and higher costs, to compete.
  
  
• The paper also considers whether to define floating offshore wind as a separate technology type in Pot 2 with a distinct administrative strike price, a move designed to encourage the development of this pre-commercial technology, which could potentially offer solutions where traditional fixed bottom offshore wind is not a viable option.
  
  
• Coal-to-biomass conversions, supported as a transitional rather than long term technology, will be excluded from future rounds.³

Planning Hurdles

For "shovel-ready" onshore wind projects already holding planning permissions, the upcoming changes to CfD may well offer the incentive they need to get development underway. For projects still to obtain planning permission, however, significant hurdles remain. Planning policy brought into effect in 2015 represents a de facto block on onshore wind. In order to obtain planning permission, first, the proposed development site must be in an area identified as suitable for wind energy development in the development plan, and second, it must be demonstrated that the planning impacts identified by the affected local community have been fully addressed and therefore the proposal has their backing; in all other cases, applications should not be considered acceptable.⁴

A Friends of the Earth investigation in May 2019 found that, of a sample of 20 local plans, more than half did not identify any suitable site for wind development.⁵ Even where a development can get over this first hurdle, local communities then have a final say, resulting in tensions between developers and those geographically impacted by the deployment of schemes, which can result in complaints over nuisance, noise, visual and biodiversity impacts. The perceived blocks to wind development are borne out by the Government's Renewable Energy Planning Database⁶, which shows that approximately two thirds of onshore wind projects in England and Wales which enter the planning system have not become become operational, in the majority of cases due to failure to secure planning permission either in the first instance or on appeal.

Recognising the ongoing debate over community concerns (or, less generously, "NIMBYism"⁷) blocking the Government's road to net zero, the consultation paper discusses the need for developments to be accompanied by an appropriate package of community benefits, which should last the lifetime of the project. The Government also suggests establishing a register of projects and community benefits, in the interests of sharing best practice. The paper lists several developments which exemplifying good practice. The most recent of these, Brenig Wind Farm, involved Chinese developer CGN committing almost £4m over 25 years to a community benefit fund, which will be available for local projects such as community transport or recreational activities. Combined with the increase in awareness of climate change issues in the last 5 years since the restrictive planning policy came into effect, there is some hope that such financial benefits will be enough to counter local objections.

The Verdict?

The government's proposals have mostly been received positively, with the hope that they will encourage a resurgence of renewable energy projects, and represent "the UK’s cheapest new energy source – onshore wind – being brought in from the cold".⁸ Although an increasing number of subsidy-free solar and other renewables projects are being deployed⁹, this is not without risk, and CfD may offer projects that have been waiting to break ground the incentive they need to do so.

It is also positive to see the Government focusing on emerging technologies, such as floating offshore wind, where projects need to be de-risked in order to be viable, yet have strong potential to deliver returns. A dynamic approach to technology can only help in delivering a diverse and competitive market for renewable energy deployment and the volumes of renewable energy required to meet the net zero target.

Acknowledgements

Many thanks to JJ Ball for his contribution to this piece.