Contracts for Difference Scheme: An Allocation Round 6 Update

As the sixth allocation round (AR6) of the Contracts for Difference (CfD) scheme is now well underway, stay switched on to latest updates with an overview of the auction timelines, budgets and pots from James Clark, Business Development Manager.

CfD AR6 pushed to the longest timeline

On the 27^th March 2024, the latest CfD auction, AR6, officially opened with aims to bring forward new, clean energy to support the delivery of the UK’s ambitious decarbonisation commitments.

Initially, it had been hoped that the auctions would be completed towards the end of June or early July. However, the National Grid Electricity System Operator (ESO) has since confirmed that at least one non-qualifying applicant has lodged an appeal with energy regulator Ofgem, meaning that the remaining stages of AR6 will run to timeline scenario five. This is the longest possible timeline, therefore pushing the conclusion of the latest auction back to anywhere between 19 September to 2 October 2024.

AR6 brings the largest CfD budget to date with a focus on offshore wind

A budget of £1.025 billion was confirmed for AR6, bringing the largest budget for a Contracts for Difference (CfD) allocation round to date, split into the following technology pots:

• Pot 1: £120m for established technologies, such as solar and onshore wind.
• Pot 2: £105m for emerging technologies, such as floating offshore wind and geothermal.
• Pot 3: £800m allocated entirely to offshore wind.

This significant boost in budgets is necessary to further support the delivery of renewable energy projects and diversify the renewable energy mix after the CfD scheme underdelivered in recent years.

Whilst AR5 saw large capacities of solar and onshore wind, and awarded its first contract for geothermal power, the auction failed to secure any new offshore wind capacity. A disappointing result for not only offshore wind developers, but also the governments targets to reach 50GW of offshore wind capacity by 2030.

This downfall was due to spikes in supply chain costs and a low administrative strike price set for the auction, with many blaming the auction for failing to accurately capture the economic impacts of inflation and interest rates at the time.

As a result, for the upcoming AR6 we have seen a significant increase in the Administrative Strike Price, from £44/MWh to £73/MWh for offshore wind, and a greater budget, with a pot dedicated entirely to the technology, and we can see as much as 12.2GW worth of offshore wind projects could bid in the next auction.

What happens once the results are announced?

After the auction results have been announced, all projects awarded with a CfD contract take a Final Investment Decision, deciding whether or not they would like to go ahead. Successful projects have to take that decision within a year of the auction or demonstrate that they have already spent 10% of the total project cost. From then, development is underway as generators finalise procurement and construction plans to meet their Delivery Year and look for a viable route to market, which is where SmartestEnergy comes into play!

How can SmartestEnergy support your CfD project?

We offer independent generators a competitive route to market with a long term PPA deal that aligns with the commercial terms of your CfD commitment. With a flexible framework, we can support the project’s transition from the Commercial Operations Date of the CfD contract through to the CfD Commencement date, providing generators with up to 15-year discounts to the Intermittent Market Reference Price (IMRP).