UK government confirms budget for this year’s Contracts for Difference scheme as it enters its first annual auction, boosting energy security.

£205 million for renewable energy (photo of turbine)
  • Government announces significant financial backing for first annual flagship renewables auction, boosting Britain’s energy security
  • £170 million pledged for established technologies to ensure Britain remains a front runner in renewables and £10 million ring-fenced budget for tidal
  • Scheme will bolster investment into the sector every year, delivering clean, homegrown energy as well as green growth and jobs

Britain’s rollout of clean, affordable, home-grown energy is moving full speed ahead, with the UK government offering £205 million in its latest renewables auction, boosting energy security, growing our economy and powering more of Britain from Britain.

The Contracts for Difference (CfD) scheme is the government’s flagship mechanism for supporting new British low-carbon electricity generation projects, so far awarding contracts to projects totalling nearly 27GW of low carbon capacity. This has helped accelerate plans to diversify, decarbonise and domesticate our energy supplies, with the last round (AR4) securing almost 11GW of low carbon capacity – enough to generate sufficient electricity to power 12 million British homes.

Today’s announcement of a budget of £205 million for the fifth CfD allocation round – which is the first CfD auction to run annually – confirms another year of significant financial backing by government for green industries and jobs. This will bolster investment into the sector every year, helping to support green energy and jobs of tomorrow, level up Britain, and replace expensive fossil fuels with cheaper, cleaner, domestic sources of energy.

This includes £170 million for established technologies such as offshore wind, ensuring Britain remains a front runner in global offshore wind, and £10 million ring-fenced budget available for tidal stream technologies, unlocking a thriving tidal power industry here in the UK.

Building a cleaner, more secure energy future with thriving green industries will also help deliver on our promise to grow our economy and create good jobs across the country, with billions of pounds in private investment and 68,000 green jobs supported since late 2020.

The competitive nature of the Contracts for Difference scheme has already proven successful at placing downward pressure on prices since the first auction was held. This process, together with solar and wind now amongst the cheapest form or electricity generation in the UK, means the scheme will play an increasingly important role in helping to meet the Energy Security Secretary’s ambition for Britain’s wholesale electricity prices to be among the cheapest in Europe.

Minister of State for Energy Security and Net Zero Graham Stuart said:

Our flagship Contracts for Difference scheme is already delivering clean, homegrown energy as well as growing a green economy with green jobs.

Today’s budget announcement, the move to annual auctions and continued investment in renewable energy will limit the impact of events like Putin’s illegal war in Ukraine and drive our overriding priority for the UK to have amongst the cheapest wholesale electricity prices in Europe.

I am excited to see the opportunities that will open for Britain’s world-class renewable industries as annual auctions kick off this year, enhancing the UK’s reputation as among the most attractive places to invest in for a secure, affordable and prosperous future.

The UK government continues to support the deployment of renewable power right across Britain, with the scheme so far having awarded contracts to 52 projects in Scotland, which represents around 30% of all CfD projects and around 25% of total CfD capacity.  In Wales, the scheme has so far awarded contracts to 9 projects, totalling around 260MW of capacity.

The scheme is designed to be fair and deliver low carbon deployment at low-cost to consumers – so that when wholesale electricity prices are higher than the price agreed in the CfD, generators pay back the difference. This will be passed on to energy suppliers and over time, is expected to translate to lower bills for consumers.

Offshore wind has been at the heart of the scheme and the industry is a major UK success story thanks to Britain’s flagship CfD scheme. The UK has the largest operational fleet in Europe, the world’s 4 biggest individual windfarms and a world-leading ambition to deploy up to 50GW by 2030, including up to 5GW of floating offshore wind, which the scheme continues to help deliver. As set out in the British Energy Security Strategy, by 2030 the UK is set to generate more than enough electricity from offshore wind to power every home in Britain, attracting vital investment to UK coastal communities, supporting 90,000 direct and indirect jobs.

This follows an unprecedented £20 billion investment into carbon capture announced yesterday in the Spring Budget, alongside the first state backing of a nuclear project in almost 40 years at Sizewell C and confirming the next steps for Great British Nuclear to revolutionise how new nuclear projects are delivered in the UK.

Neil McDermott, CEO of the Low Carbon Contracts Company (LCCC), said:

We welcome the announcement from the government on CfD Allocation Round 5. We look forward to working with investors and generators for these important projects as we continue the journey to Net Zero.

Notes to editors

2023 Pot structure

As announced in the Core Parameters Publication in December 2022, CfD Allocation Round 5 will feature 2 auction pots with offshore wind now competing alongside other established technologies, enabling it to build on its great success and remain competitive with other renewable technologies.

Arranged across 2 ‘pots’, this year’s fifth Allocation Round (AR5) includes an allocation of £170 million to Pot 1 for established technologies, which for the first time includes offshore wind and remote island wind – and confirms an allocation of £35 million for Pot 2 which covers emerging technologies such as geothermal and floating offshore wind, as well as a £10 million ring-fenced budget available for tidal stream technologies.

A 2-pot structure will also support competition in AR5 to drive efficient and long-term support for low-carbon generation.

Additional information

  • Contracts for Difference are 15-year private law contracts between renewable electricity generators and the Low Carbon Contracts Company (LCCC), a government-owned company that manages CfDs at arm’s length from government
  • the scheme does not extend to Northern Ireland
  • CfDs give certainty and stability of revenues to project developers to invest in new renewable energy infrastructure by protecting them from volatile wholesale prices. A unique benefit of the CfD scheme is that when wholesale electricity prices are high, as they have been in recent months, generators pay money back into the scheme to reduce the net costs of the scheme to consumers
  • the CfD round is scheduled to open to applications on 30 March. After the closing date National Grid ESO will assess and value all qualifying applications and notify the Secretary of State, who may then consider whether to increase the budget for the allocation round
  • monetary support (pot budget) estimates in this notice, including the £205 million total figure and split across the 2 pots, are presented in 2011-2012 prices in line with the Control for Low Carbon Levies. These figures are an estimate of annual support in the most expensive year in the first 5 (Pot 1) or 4 (Pot 2) years following deployment. Actual annual figures will vary over the lifetime of the contract depending on future wholesale electricity prices, and outcomes of the competitive auction process
  • the budget is set by taking into account our best knowledge, at that moment in time, about the anticipated firm project pipeline. The government has the opportunity to review the budget, after applications have been assessed by the CfD delivery partner (the EMR Delivery Body – National Grid ESO) and once the government has greater certainty about participation in AR5
  • the homes powered estimate reflects the equivalent number of homes that could be powered based on an estimate of the annual generation from the capacity procured in AR4. It is not possible to power a home continuously through intermittent renewables – this capacity will work alongside the rest of the electricity system to power homes and businesses. The estimate is calculated using household consumption estimates sourced from the published National Energy Efficiency Data, and technology specific load factors published in the CfD Allocation Round 4 Standard Terms Notice. The actual generation will vary based on site specific factors
  • results of the AR5 auction are expected late summer/early autumn 2023

AR5 contract changes

  • The government has also published other key documents for AR5 and a response to the consultation on AR5 contract changes
  • during periods of high wholesale electricity prices, CfD generators should ordinarily pay money back into the scheme. By delaying their start dates, some generators were making extra profit on the wholesale market
  • today the government has also confirmed a technical change to the AR5 contract, confirming that flexibility to delay contract start dates should not be used by generators to benefit from higher prices on the wholesale market.
  • the publication of these notices mean that AR5 is set to open to applications on 30 March with results to be announced in late summer/early autumn 2023, with the goal of building upon the already paramount success of the scheme
Published 16 March 2023