Contracts for Difference: update on UK Government policy for CfD AR6

As noted in our previous articles on upcoming announcements on the UK’s Contract for Difference scheme (“CfD”) (see here and here), the UK Government has now published responses to its consultation on policy considerations for future allocation rounds (including the sixth allocation round (“AR6”) which it intends to launch in March 2024) (the “Consultation”).

Co-ordinated infrastructure

The Government considered whether an offshore wind farm connected to a multipurpose interconnector (“MPI-OFW”) should be eligible to apply for a CfD. The responses in the consultation were positive noting that their inclusion in the CfD scheme would boost investor confidence in these projects. However, the Government will review further whether accommodating for MPI-OFWs in the CfD scheme would achieve the best value for money for consumers, such as to justify their inclusion into the CfD scheme. Accordingly, this will not be implemented ahead of AR6.

Offshore wind phasing policy

The Government considered restricting or removing the phasing policy (which allows generators to build projects in up to three phases) from future allocation rounds on the basis that this policy has achieved its original purpose (i.e., to mitigate the construction risk across multiple phases, which was critical when the sector was nascent). The Government is now concerned that developers were using phasing as a bid optimisation strategy and not for construction risk mitigation. Based on the responses, the Government has decided to retain the phasing policy for fixed-bottom offshore wind projects. Meanwhile, it will examine the impact of removing the phasing policy on supply chain infrastructure and the efficacy of the changes introduced in AR5 to address this risk.

Definition of “floating offshore wind”

The Government considered whether it should publish a list of technology types which it considers eligible to compete for a floating offshore wind CfD. While the consultation responses supported the inclusion of parameters around the types of technology that should fall within the definition of “floating offshore wind” for the purposes of CfD (Allocation) Regulations 2014, there were concerns around how this list would be determined. Accordingly, the Government is not including a list of eligible technology for “floating offshore wind” in AR6.

Private Network CfD Agreement

The Government considered whether renewable generators that directly supply offshore oil and gas facilities should be ineligible to apply for a private network CfD. The Government has concluded that these generators are ineligible for this CfD. It intends to implement this change ahead of AR6 and will consult on the specific amendments to the private network CfD before AR6 opens.

Appeals

The issue of whether the current CfD application appeal process remains fit for purpose under the new “annual CfD allocation round” structure remains under consideration as the Government seeks to further streamline the CfD auction process.

Treatment of repowered projects

The Government is also considering whether the CfD scheme is an appropriate mechanism through which to support repowered assets given the vital role that the repowering of renewable electricity generation sites is expected to play in meeting the net zero and energy security objectives.

Conclusion

We will continue to monitor and report on updates relating to AR6. Meanwhile, please reach out if you would like more detail on the legislative and regulatory regimes underpinning AR6 or the UK CfD scheme generally.

Linklaters has market-leading expertise across geographies and sectors to advise clients on the full spectrum of climate and sustainability-related mandates. We regularly advise on offshore wind farm projects across the globe and have market-leading experience. We acted on the first offshore wind farm financing in 2004 and have been at the forefront of all the developments in the market ever since.