The Department of Business, Energy and Industrial Strategy (BEIS) of the UK government formally opened the fourth round of low-carbon energy project tenders under its contract for difference (CfD) scheme on December 13. With a supporting funding of GBP 285 million per year, this CfD tender round is the largest one initiated by the UK government to date as it is set to allocate 12GW, which is more than the combined tendered capacity of the previous three rounds.
BEIS first announced the fourth CfD tender round this March. The budget for the tender round was finalized this November. BEIS will be accepting bids from December 13 to January 14. The results will be announced sometime between the spring and summer of 2022.
The 12GW of tendered capacity is further divided into three “pots”. The first pot, which is capped at 5GW and to be backed by GBP 10 million annually, comprises projects based on established PV, wind power, and hydropower technologies. The second pot, which has no capacity cap, comprises floating wind farms and tidal power projects. Floating wind farms are to be supported by GBP 24 million annually, whereas tidal power projects are to be supported by GBP 20 million annually. The third pot, which also has no capacity cap, comprises offshore wind farms and an annual funding of GBP 200 million.
Hence, the fourth CfD tender round heavily favors the development of offshore wind power. Even though the capacity cap of the first pot is 5GW, the quotas for onshore wind power and PV generation are further limited to 3.5GW respectively.
The winning bidders will enter into a 15-year CfD agreement with government-run Low Carbon Contracts Company (LCCC). Dan McGrail, CEO of RenewableUK, said that more than 23GW of renewable energy bids could be entering the fourth-round bidding, and out of that amount, bids related to wind power could exceed 16GW. Dan also noted that the fourth round could see investments of more than GBP 20 billion. RenewableUK is an umbrella trade association for the wind power, wave power, and tidal power industries.
The UK government has set the target of achieving net-zero emissions by 2050. To reach this goal, the government is aggressively promoting technologies related to renewable generation, energy storage, and smart grid. The latter two categories of technologies help improve the stability and flexibility of the country’s electric power system as a whole.
In the “Ten Point Plan for a Green Industrial Revolution” that was released by the UK government in November last year, the development of offshore wind farms is listed as number one. As for the CfD scheme, it has been the primary means of subsidizing low-carbon energy projects. Under this mechanism, generators are paid the difference between the strike price that reflects the investment cost and the reference price that is also the average market price for electricity. The UK government has touted that CfD has been instrumental in lowering development costs for offshore wind farms.
The official government statement announcing the fourth tender round also pointed out that the country’s consented pipeline for offshore wind projects has come to around 7GW, which would be sufficient to meet the electricity demand of 8 million homes. Offshore wind power is expected to receive greater support going forward since the geographical and environmental conditions of the UK are more amenable to the deployment of this renewable technology. In October last year, the UK government raised the 2030 target for offshore wind power from 30GW to 40GW. According to an article from website Renewables Now covering the fourth CfD tender round, 13GW of offshore wind power has already been allocated under the CfD scheme.