The Energy Transition | Government allocates up to £1bn for CfD Allocation Round 6 budget

This week we look at: the allocation of up to £1bn for the latest CfD allocation round, government announcements on nuclear and low-carbon investment, and contracts being awarded to develop an England-Scotland electricity "superhighway".

Government allocates up to £1.025bn for CfD Allocation Round 6 budget

During the Spring Budget announcement on 6 March, the chancellor of the exchequer, Jeremy Hunt, revealed that the total budget for the next allocation round (AR6) of the Contracts for Difference (CfD) subsidy scheme will be £1.025 billion. The CfD scheme has been in place since 2014 and aims to encourage investment in UK renewable energy projects by providing a guaranteed price for energy generated by qualifying projects. In the last decade the scheme has encouraged investment in 29.4GW of renewable energy generation.

The total AR6 funding will be split across three "pots" depending on technology types:

• Pot 1, £120 million: Energy from waste with combined heat and power (CHP), hydro (>5MW and <50MW), landfill gas, onshore wind (>5MW), remote island wind (>5MW), sewage gas, and solar photovoltaic (>5MW).
• Pot 2, £105 million: advanced conversion technologies, anaerobic digestion (>5MW), dedicated biomass with CHP, floating offshore wind, geothermal, tidal stream, wave.
• Pot 3, £800 million: Offshore wind.

Increasing the capacity of operational offshore wind is a key priority for the government in the transition to net zero, with the UK targeting 50GW of offshore wind to be operational by 2030. We previously reported that the UK government had increased the CfD maximum strike price for offshore wind projects by 66% in advance of AR6, from £44/MWh to £73/MWh. 

For further information on the potential impact of the AR6 funding announcement on the offshore wind industry, see our Insight,

Government announces purchase of two nuclear plants

The government has announced plans to buy two sites for new nuclear development through the state-owned Great British Nuclear body. The sites (Wylfa in Ynys Môn, Wales, and Oldbury-on-Severn in Gloucestershire) will be purchased from Hitachi for £160m.

The Wylfa nuclear plant was decommissioned in 2015 after generating for over 40 years, while the Oldbury site was operational from 1967 to 2012.

The government is acquiring the developments as part of its plans to consider options for a new large-scale nuclear plant. As we previously reported, the government's nuclear roadmap, published in January, set out its intentions to explore the potential for a new nuclear power station on the scale of Hinkley C and Sizewell C. The roadmap also sets out support for new technologies such as small modular reactors (SMRs).

In the same announcement, the government confirmed that the next stage of its competition to support SMR development is now live. The six companies chosen to participate in the next stage of the competition in October 2023 have each been invited to return tenders by June this year. Successful applicants will be allocated sites and receive funding for the development of innovative technology.

The chancellor reiterated the government's commitment to nuclear innovation, stating the intention for nuclear "to provide up to a quarter of our electricity by 2050" and for "the UK to lead the global race in developing cutting-edge nuclear technologies”.

£120m additional funding awarded for Green Industries Growth Accelerator

The chancellor has announced £120 million in funding for the Green Industries Growth Accelerator (GIGA). GIGA was introduced by the government as part of the 2023 Autumn Statement to support manufacturing and supply chains in clean energy sectors across the UK. Total funding for GIGA is now almost £1.1billion.

Of this total funding, the government has revealed around £390 million will be allocated for the expansion of UK-based supply chains for electricity networks and offshore wind sectors, while around £390 million is earmarked for carbon capture, utilisation and storage and hydrogen industries.

The government stated this additional funding for GIGA, announced as part of a wider £360 million funding package to support UK-based manufacturing, research and development, would "enable the UK to seize growth opportunities through the transition to net zero, building on our world-leading decarbonisation track record and forms part of the government’s priority to grow the economy focusing on making the right long-term decisions for a brighter future by creating better-paid jobs and opportunity right across the country."

Contracts awarded for development of England-Scotland electricity 'superhighway'

The Eastern Green Link 2 (EGL2) project, a joint venture between National Grid and SSEN Transmission, has announced a significant milestone. The joint venture has awarded contracts for development of the electricity "superhighway" to Prysmian, Hitachi Energy and BAM.

The EGL2 project will involve the installation of a 2GW subsea transmission cable from Peterhead in Scotland to Drax in England. At 436km long, it will be the longest high voltage direct current (HVDC) cable in the UK. Specialist cable supplier Prysmian has been appointed to provide the HDVC cables and Hitachi Energy is partnering with construction company BAM to provide the engineering works for the converter stations at either end of the project.

As we previously reported, all necessary planning consents for the onshore and offshore elements of the project have been secured. Construction is expected to begin in 2024, with a targeted operational date of 2029. Licenced activities are expected to commence in 2025 to achieve the targeted energisation date of 2029.

Additionally, an application has been submitted for another electricity "superhighway" from the Torness area in East Lothian to Hawthorn Pit in County Durham. In total, there are plans for four such connections along the east coast of Britain, each with a capacity of 2GW. The estimated cost for all four connections is £3.4 billion, making it the largest UK electricity transmission investment in recent history.

This insight was prepared with the assistance of Jack Duffy, Johnny Hartrick and Madeleine Begg, trainee solicitors.