CfDs round 2: offshore wind win is a blow to nuclear
UK Government has published the outcome of Contracts for Difference second round allocations. Low offshore wind prices represent a blow to the future of UK nuclear power.
On 11 September 2017, the Department for Business, Energy and Industrial Strategy (BEIS) published the results of the second round of allocations of Contracts for Difference (CfD) for the generation of electricity. The emphasis of this round was on less established technologies. The big winners were:
- six advanced conversion technology projects (technologies that convert waste into energy)
- a combined generating capacity of 56.31MW for delivery in 2021/22 (strike price of £74.74) per MWh), and
- 8MW in 2022/23 (strike price of £40 per MWh).
- two dedicated biomass with CHP scheme
- a combined generating capacity of 85.64MW for delivery in 2021/22 (strike price of £74.75 per MWh).
- three offshore wind projects
- a combined generating capacity of 860MW for delivery in 2021/22 (Triton Knoll) (strike price £74.75), and
- 2336MW for delivery in 2022/23 (Hornsea Project 2 and Moray Offshore Windfarm (East)) (strike price of £57.50 per MWh).
These allocations raise a number of interesting points. First in terms of the winning technologies, the hopes of the wave and tidal energy industry were dashed as no schemes were allocated.
Second is that the strike price for offshore wind delivery in 2021/22 was almost certainly carried through by the strike price for ACT projects.
Third is that the low strike price for offshore wind for delivery in 2022/23 (and guaranteed for 15 years) has caught many by surprise and poses a real threat to the future of nuclear power as it is significantly less than the Hinkley Point strike price of £92.50 per MWh (which is guaranteed for 35 years). The UK Government will surely come under pressure to reconsider its support for nuclear power in light of this. The second round allocation has generated a great deal of press debate on this point. The strike price is also less than the levelised cost of gas.
Renewables UK commented that “The Government can help us by continuing to hold fiercely competitive auctions for future projects, as it has promised and by putting offshore wind at the heart of its upcoming Industrial Strategy”. In relation to wave and tidal technology they commented that “it’s important that innovative renewable technologies, including wave energy and tidal energy projects also have a route to market, so different mechanisms are needed to ensure these cutting-edge technologies can develop” and in relation to onshore wind “onshore wind is the cheapest form of new power, so it deserves an opportunity to compete too”.
Comment
This second round of allocations opens up a new set of opportunities in terms of technologies supplying our energy demands. It also draws the debate as to future support for nuclear power into sharp focus, particularly when the cost of the Hinkley Point project continues to be revised upwards.
The strike price for the delivery of offshore wind in 2022/23 shows how the industry has matured and has succeeded in lowering costs. With 250GWh generated by offshore wind in Europe on 11 September 2017, the argument in favour of renewable technologies particularly offshore wind will continue to strengthen.
Read the full outcome of Contracts for Difference second round allocations here.
