The UK has proposed amendments to the Contracts for Difference (CfD) scheme which would introduce floating offshore wind as a separate eligible technology with its own administrative strike price, providing a distinction from conventional, fixed-bottom projects.
This would allow more potential for floating offshore wind projects to successfully compete in the next CfD allocation round, subject to auction prices, the Department for Business, Energy and Industrial Strategy (BEIS) said.
A separate definition and administrative strike price would also be necessary if further measures to support floating offshore wind were to be considered in future allocation rounds. These measures could assist such pre-commercial technologies, for which the levelised cost of electricity is significantly above that of more mature technologies, to access support under the CfD, BEIS said.
Separate Pot for Fixed-Bottom Offshore Wind
BEIS has also proposed establishing a separate pot, Pot 3, for fixed-bottom offshore wind projects.
Currently, the CfD scheme has two pots, Pot 1 for ”established” renewable energy technologies, and Pot 2 for ”less established” technologies, which currently includes offshore wind.
The expected costs of offshore wind projects currently are above expected levelised costs for some Pot 1 technologies such as onshore wind and solar PV, but below many of the Pot 2 technologies, making it difficult for some technologies to compete, BEIS said.
Establishing Pot 3 and thus separating fixed-bottom offshore wind projects from the other technologies that are currently in Pot 2 would allow more appropriate parameters like monetary budget, capacity cap, and delivery years to be set for each of the pots to reflect project characteristics and reduce the risk of potential future suboptimal auction outcomes such as higher strike prices, and hence consumer costs, than necessary, according to BEIS.
On the other hand, by reducing competition to offshore wind alone, there is a risk that there are fewer uncertainties for bidders, reducing competitive tension. BEIS considers that this can be managed by ensuring that auction parameters such as the level of any capacity cap are set in a way that continues to ensure competitive tension and value for money.
Separating offshore wind from the other technologies in the current Pot 2 could mean that more budget is allocated to projects that would otherwise be unsuccessful if offshore wind remained in Pot 2, increasing technological diversity but also potentially increasing consumer costs.
BEIS is seeking feedback on the proposed amendments to the CfD scheme, with the consultation period ending on 22 May 2020.
The UK government intends to run a CfD allocation round in 2021 for all eligible technologies.