Utility Week

24 | JANUARY 2022 | UTILITY WEEK Generation Analysis Generation Outlook: The upcoming CfD auctions The fourth CfD allocation round – the largest to date – is open. Utility Week speaks to Aurora Energy Research associate Edward Pizzey about how the auctions are likely to play out given the parameters set out by the government in its final budget notice. O n 13 December the window opened for applications to the fourth Contracts for Difference (CfD) allocation round. For the first time in more than half a decade the auctions are open to onshore wind and solar. The last time these "more- established" pot 1 technologies were able to bid was in the first competitive allocation round back in 2015. Following the subsequent closure to new entrants of the Renewables Obligation across 2016 and 2017 and then the Feed-in Tariff in 2019, the only onshore wind and solar projects that have been able to proceed in recent years are those that have been able to build an investment case on merchant revenues alone. As a result, deployments have "tailed off completely", says Edward Pizzey, associ- ate at Aurora Energy Research. "The funny thing is they phased out those subsidies just at the wrong time. It's a bit unfortunate really. Solar and wind weren't quite ready. They weren't fully fledged. The costs hadn't come down quite enough for them to go fully merchant." Pot 1 In its final budget notice for the fourth allo- cation round towards the end of Novem- ber, the Department for Business, Energy & Industrial Strategy confirmed that the budget for the pot 1 auction – the maximum value of estimated annual top-up payments to generators that secure agreements – will be £10 million. Although this may not seem like a lot at first glance, it could stretch a long way – theoretically to infinity if applicants bid at strike prices at or below their respective ref- erence prices for what they will be able to able to capture on wholesale markets. It is for this reason that ministers have also imposed a hard capacity cap of 5GW, with individual REFERENCE PRICES 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 Baseload reference price 48.25 49.71 48.36 45.35 42.94 38.15 Hydro reference price 50.84 51.58 50.26 47.55 - - Offshore wind reference price - - 47.05 42.05 38.77 32.85 Onshore wind reference price 48.57 48.76 47.36 42.80 40.12 34.11 Solar PV reference price 47.16 47.11 44.45 41.61 - - ADMINISTRATIVE (MAXIMUM) STRIKE PRICES Technology type Administrative strike price Advanced Conversion Technologies (ACT) 190 Anaerobic digestion (>5MW) 128 Dedicated biomass with CHP 163 Energy from waste with CHP 121 Floating offshore wind 122 Geothermal 133 Hydro (>5MW and <50MW) 93 Landfill gas 62 Offshore wind 46 Onshore wind (>5MW) 53 Remote island wind (>5MW) 62 Sewage gas 151 Solar PV (>5MW) 47 Tidal stream 211 Wave 258 KEY NUMBERS FROM FOURTH CFD ROUND AUCTION BUDGETS Delivery and valuation years 2023/23 2024/25 2025/26 2026/27 2027/28 2028/29 Overall budget (£ million in 2011/12 prices) 10 10 285 285 275 275 Pot 1 10 10 10 10 - - Pot 2 - - 75 75 75 75 inclusive of: - Minimum for floating offshore wind - - 24 24 24 24 - Minimum for tidal stream - - 20 202 20 20 Pot 3 - - 200 200 200 200 Source: The final budget notice from BEIS

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