All 99 contracts offered through the fourth Allocation Round (AR4) of the UK government’s Contracts for Difference (CfD) scheme have now been signed and returned to Low Carbon Contracts Company (LCCC).
A total of 93 individual projects across Britain will now proceed to work with LCCC to meet the contractual milestones specified in the CfD, supporting projects’ development and the delivery of almost 11 GW of clean energy. The first AR4 projects are due to come online in 2023-24.
The variety of technologies supported through AR4 – including tidal stream and floating offshore wind for the first time, as well as established solar, onshore, and offshore wind technologies – mean this round is the CfD scheme’s most diverse yet, as well as its largest.
Projects supported range in size from solar PV developments with an average capacity of 33.48 MW, to Ørsted’s 2,852 MW megaproject, the Hornsea 3 offshore wind farm.
Partners in the Hornsea 3 CfD from LCCC and Ørsted came together to mark the AR4 milestone with the UK Business and Energy Secretary, Kwasi Kwarteng.
”Our renewable energy auction scheme has been an outstanding success, with the latest round securing enough clean energy to power twelve million British homes and the price of clean energy plummeting even further,” Kwarteng said.
”Getting contracts signed means projects can push on and deliver jobs and opportunities across the country. This will help to secure our homegrown supply of cheaper renewables and bring down the price of energy for millions of British families as we shift away from expensive fossil fuels.”
Apart from Hornsea Two, four more offshore wind projects secured CfDs in this round at a strike price of GBP 37.35/MWh each.
”The offshore wind industry success story continues to deliver great value to the UK economy and Hornsea 3 represents another significant step forward,” Benj Sykes, Vice President at Ørsted, said.
”The project demonstrates how far the industry has come in terms of cost and scale and, crucially, in bringing forward projects that will deliver low cost, clean energy to households and businesses across the country. Ørsted expects to invest a further £14billion in the UK by the end of this decade, supporting the delivery of thousands of high-quality jobs and strengthening the UK supply chain. We look forward to working with government and industry colleagues to accelerate the deployment of offshore wind.”
AR4 projects’ total estimated notional monetary budget impact will be less than zero in the first three delivery years, with an increase in 2027-28 matching the steep rise in generation capacity coming online, LCCC said. While money flows under the CfD are always subject to actual prices at the time of generation, the AR4 portfolio would return money to the CfD scheme at current market prices.
Given the size and diversity of AR4, LCCC automated the process used to produce, distribute and receive signed contracts. Whilst the manual process used in previous allocation rounds saw 16 contracts produced and returned within ten days in AR3, this year’s process has seen all 99 contracts issued and returned within a shorter time period. With allocation rounds set to occur annually from March 2023, this process will save time and resources for stakeholders across the scheme, LCCC said.
Projects must now pass their Initial Conditions Precedent within twenty working days. This contractual milestone is the first step on CfD projects’ journey to construction and operation.
George Pitt, Chief Financial Officer at LCCC said: ”2022 has been a landmark year for the CfD scheme, and the diversity and scale of AR4 projects proceeding is a huge mark of confidence in it. Amidst unprecedented times, this new generation of power projects stands to benefit communities and businesses across the length and breadth of the country, as well as well as protecting the long-term health of our environment, economies and societies.”
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