The Energy Transition | UK government finalises Contract for Difference Allocation Round 7 reforms

UK government confirms further reforms to the CfD regime for Allocation Round 7

The government has published its final response to policy proposals following two consultations on Contracts for Difference (CfD) reforms that closed on 21 March and 16 June respectively – with the latter focusing on fixed-bottom offshore wind.

The proposals will be introduced for Allocation Round 7 (AR7) with the window for applications open from 7 August until 27 August.

Increased term length

Fixed-bottom offshore wind, floating offshore wind, onshore wind and solar will now be eligible for 20-year CfD contracts (up from 15 years). The government says the decision will reduce the "merchant tail" revenue risk associated with these projects and reduce the cost of capital and overall project costs, as well as result in cheaper financing arrangements. The government proposes that this could bring down strike prices compared to a 15-year term.

Budget publication

No capacity ambition statement will be published for AR7 as these ambitions have already been set out in the Clean Power Action Plan, but the government will still publish a monetary budget. A contract budget notice will be published after the allocation window opens but before the sealed-bid window is opened.

For fixed-bottom offshore wind, the budget will be published before the sealed-bid window; however, only bid information on projects that breach the budget level will be reviewed by the secretary of state. A budget increase will be able to be considered where there is a likely benefit to consumers.

Floating offshore wind

AR7 and future allocation rounds will be structured in such a way as to facilitate and support floating offshore-wind projects. While details are limited, the government will consider best ways to support the technology before each new allocation round. This support will be "balanced" between so-called "test and demonstration" projects and "commercial scale" projects.

Changes to the CfD contract terms, adjustments to eligibility criteria and legislative amendments will enable offshore floating wind projects to apply and operate as phased CfD projects.

Solar PV Target Commissioning Window

The Target Commissioning Window for solar PV projects that are awarded CfDs will be extended from three months to 12 months for any project above 5 megawatts. This aims to reflect the increasing scale of solar projects as well as the delays they face including grid delays, supply-chain constraints, construction challenges and planning delays. It also aligns solar PV with the other "Pot 1" technologies.

Onshore-wind repowering

The amendments to CfD from AR7 will allow implementation of the government decision to enable CfD support to be applied to onshore-wind repowering projects.

Updates for fixed-bottom offshore wind projects

The government, following a previous consultation earlier this year, had indicated likely adjustments to fixed-bottom offshore wind projects. The latest response confirms a proposal will be implemented to allow fixed-bottom offshore wind projects to apply for a CfD while awaiting full planning consent. For projects in England and Wales, 12 months will need to have passed since their development consent orders were accepted for inspection; in Scotland, 12 months will need to have passed since projects applied for any required section 36 consent and marine licences, as well since the public consultation commenced.

Other updates

The energy secretary will now also be able to view developer bids before setting a final budget to provide additional certainty around capacity being procured.

A temporary restriction has been introduced on surrendered capacity from previous allocation rounds being entered into AR7. The government intends that this will prevent gaming of the system, whereby developers could surrender capacity from a previous allocation round to benefit from a higher strike price in AR7.

Contract changes will be made to reflect the establishment of the National Energy System Operator and the suspension of Clean Industry Bonus payments.

Consultation underway on developing an economic regulatory framework for 100% hydrogen pipeline networks

The government has opened a consultation on its proposed amendments to the economic regulatory framework for 100% hydrogen transport and storage infrastructure.

Hydrogen currently falls under the regime set out in the Gas Act 1986, and the government has considered whether this remains sufficient to facilitate the growth of the low-carbon hydrogen industry. It is proposing that some of the mechanisms are adjusted to a more appropriate level for the hydrogen market, with reference to how the hydrogen market will differ from the natural gas industry for which the Gas Act was originally developed.

The government recognises that hydrogen transport and storage infrastructure is particularly vital in scaling up a competitive domestic market. It suggests the infrastructure will largely be located near demand sources in industrial clusters. However, it acknowledges the importance of locating infrastructure where it can offer strategic value for future expansion as the nascent industry grows to scale.

The government has split its proposals into four categories, each largely focusing on the Gas Act's regulation of hydrogen transport and storage infrastructure. These proposals include:

• Retaining the current regulations on balancing, and proposing that hydrogen producers are the best placed market participants to undertake the activity of primary balancing.
• Considering which party should adopt a system operator role within 100% hydrogen pipeline networks, and proposing that much of the system operation responsibilities can be assumed by holders of a transporter licence.
• Exempting 100% hydrogen pipeline networks from the requirement to hold a supply licence.
• Setting up a code to support operation of the networks, with the government potentially coordinating its development using a "minimum viable product" approach.

The consultation is seeking views from stakeholders as to whether these proposals are "fit for purpose" in allocating clear roles and responsibilities for market participants, providing commercial confidence and retaining sufficient flexibility to evolve in line with network development.

Responses can be submitted here and the consultation will close on 9 September.

NESO report on future energy scenarios identifies 'critical enablers' for success of net zero

The National Energy System Operator (NESO) has published its Future Energy Scenarios: Pathways to Net Zero report that identifies four "critical enablers" for success to achieve net zero by 2050 and acknowledges the actions still to be taken.

Regardless of future policy decisions, the report suggests that 2050 scenarios could see a tripling in electricity demand from 290 terawatt hours (TWh) in 2024 to 705-797TWh by 2050.

'Acceleration wave'

The report states that Great Britain has entered an "acceleration wave" from today through to 2030. To maintain necessary progress, NESO identifies four critical enablers to be the focus of this acceleration wave.

• Energy efficiency. Accelerating adoption of energy efficiency measures to benefit consumers, including installation of efficient appliances and improved insulation for new builds.
• Demand flexibility. Empowering households and businesses willing and able to make informed energy choices through innovative and flexible energy tariffs.
• Infrastructure and energy supply. A coordinated strategy across electricity, gas, bioenergy, hydrogen, and CO2 transport and storage to provide greater certainty options through investment in low-carbon technology supply chains.
• Switching to low carbon technologies. Implementing policy to encourage domestic consumers and businesses to switch to low-carbon energy sources and accelerate system-wide adoption by reducing the price of electricity relative to gas.

Pathways to net zero

In the report, NESO also provides three pathways to achieve net zero by 2050 that each involve "substantial and continued" development of new power assets and infrastructure.

These include "holistic transition" through a mix of electrification and hydrogen; "electric engagement" through "electrified demand" that requires high nuclear and renewable capacity increases; and "hydrogen evolution" through rapid progress of hydrogen usage in heavy industry and the heat sector.

NESO has confirmed that it will publish a cost analysis to accompany the report.

Great British Energy announces £10m grant for community energy projects

Great British Energy has announced that it will award mayoral authorities a share of £10 million in grant funding to roll out publicly owned clean energy projects The projects will be located at and owned by community facilities, such as libraries, fire stations, care homes and community centres.

Schemes receiving a share of the funding include the installation of rooftop solar and battery storage, together with electric vehicle chargers at these facilities, as well as a solar project in York that will directly power a community swimming pool.

The government hopes that by incentivising community-centred clean energy projects, the facilities will directly benefit from lower energy bills. It estimates that the schemes could produce around £35 million in lifetime savings on energy bills, which can be reinvested into community frontline services, while also creating jobs and improving energy security.

The energy secretary, Ed Miliband underlined the intention that "your sports hall, library and community centre could have their energy bills cut by Great British Energy".

The scheme follows Great British Energy's announcement in March that it would support the installation of solar panels on 200 schools and hospitals.