UK risks losing out on green energy projects under latest government auction plans
The UK will miss out on vital investment in energy projects and manufacturing contracts under the latest plans for the upcoming renewable auction this month, a leading industry body has warned.
Renewable UK called on the government to increase the budget for the fifth contracts for difference (CfD) allocation round to ensure companies were inclined to bid on new developments and help the country reach its energy security and climate goals.
It fears that the latest plans unveiled by Downing Street will fail to maximise investment in wind, solar and tidal projects.
RenewableUK’s economics and markets manager Michael Chesser said: “Unfortunately, in the light of global inflationary pressures, the budget and parameters set for this year’s CfD auction are currently too low and too tight to unlock all the potential investment in wind, solar and tidal stream projects which the industry could deliver.
“Concerns about energy bills and energy security are at a record high, so the UK should be trying to maximise investment in low-cost clean energy, to provide relief for billpayers who’ve been hit hard by massive spikes in global gas prices over the past year.”
This was particularly challenging at a time when the US was offering vast subsidies to green energy projects in the Inflation Reduction Act, while the EU was looking to compete with its own Green Deal Industrial Plan.
By contrast, the UK was “sending the wrong investment signals”.
Chesser said: “We risk losing vital opportunities to scale up our supply chains around the UK, denying communities the industrial-scale benefits which our sector offers. We’re also jeopardising our global lead in cutting-edge clean energy technologies like floating wind and tidal stream.”
Government unveils terms of fifth CfD round for renewable energy bids
The criticism follows the government unveiling its funding plans for the next renewables auction, pledging £205m to the fifth contracts for difference allocation round later this month.
The funding pledge includes £170m for technologies such as as offshore wind and a £10m ring-fenced budget for tidal stream technologies.
The CfD scheme is the government’s chief mechanism for supporting new low-carbon electricity generation projects.
It is designed to deliver low carbon deployment at low-cost to consumers – so that when wholesale electricity prices are higher than the price agreed in the CfD, generators pay back the difference.
This will be passed on to energy suppliers and over time, it is expected to translate to lower bills for consumers.
So far, the CfD scheme has awarded contracts to projects totalling nearly 27GW of low carbon capacity – with the last round (AR4) securing almost 11GW of low carbon capacity.
This is enough power to generate sufficient electricity to power 12m homes across the country.
The competitive nature of CfDs has significantly driven prices down, placing solar and wind among the cheapest forms of electricity generation.
However, there have been growing concerns in the industry that inflationary pressures and challenging economic conditions would put prices under pressure at the next auction round.
Earlier this month, Energy UK’s deputy director Adam Berman told City PM the government needed to be realistic over prices or there was a real risk of losing out on future projects.
He said: “For this round to be successful, the government will have to recognise that these projects will be costlier to deliver and if those costs are not recognised, the projects will not come forward.”
The UK has the largest operational fleet of offshore wind in Europe, alongside the world’s four biggest individual wind-farm.
Downing Street’s energy security strategy is targeting 50 GW of offshore by the end of the decade, including up to 5GW of floating offshore wind.
There are growing reports the UK is formulating its own response to clean energy subsidy regimes in the US and on the continent – known as ‘Green Day’.
Chancellor Jeremy Hunt unveiled £20bn investment into carbon capture in the spring budget, alongside the first state backing of a nuclear project in almost 40 years at Sizewell C.
He also confirmed the next steps for Great British Nuclear so it can ramp up nuclear projects delivered in the UK.
When approached for comment, a government spokesperson said: “We are taking significant action to encourage investment in renewable generation, including our renewable energy auctions, which just last year contracted record capacity of almost 11GW of clean energy.
“Today we confirmed significant financial backing for this years’ auctions, which will be the first of our Contracts for Difference (CfD) round to run annually. This is a valuable signal to the market, introduced in response to calls from industry to run more frequent auctions and is set to bolster further investment into the sector every year.
“We are working together with the sector, including all offshore wind developers, on how we can further increase our energy security and independence through greater renewable deployment.”