The next renewable energy auction in the United Kingdom could result in subsidy-free projects awarded contracts as next-generation offshore wind technology will serve to dramatically reduce costs.
Bloomberg reported last week that a fund manager at Investec plc, an international specialist banking and asset management group, is expecting winning bids in the next UK Contract for Difference (CfD) auction round to be awarded at wholesale rates. Specifically, Deirdre Cooper, who helps oversee clean investments at Investec’s asset management division, expects the auction strike level to be “highly competitive with the wholesale price, as next-generation multi-megawatt turbines are likely to be used which will significantly reduce costs.”
The UK’s Contract for Difference scheme is the country’s main mechanism for supporting new low-carbon electricity projects. Winning project bids are awarded their contracts at a fixed price — measured as the difference between the “strike price” and the “reference price” — and if the wholesale rate is at a higher level than the contract, the generator will pay the difference back. According to the UK’s Department for Business, Energy & Industrial Strategy (BEIS), “The strike price is a price for electricity in £/MWh determined through a sealed bid process during the allocation round, and therefore should reflect the cost of investing in a particular low carbon technology.”
The last CfD auction round was awarded in September 2017. In this, the second CfD round, three offshore wind farms were awarded contracts (out of a total of eleven new projects) at a strike price of only £57.50 per megawatt-hour (MWh). The first CfD allocation round, held in February of 2015, awarded two offshore wind projects at strike prices of £119.89 MW/h and £114.39 MW/h.
The next CfD auction round, the third overall, opened on May 29, and will be backed by a budget of £65 million for projects set to be delivered in 2023/24 or 2024/25.
Moving forward, the BEIS has promised that future allocation rounds will be held around every two years and up to £557 million of annual support will be available.
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