Now that the UK government has set out its ambitious net zero strategy – including plans to decarbonise its power system by 2035 – the pressure is on to start delivering, but for onshore renewables the level of commitment still falls short.
Another major milestone is looming in December with the next Contracts for Difference (CfD) auction to spur a further tranche of clean energy deployment. The mechanism is designed to provide both revenue certainty for new renewable electricity generation projects, and comfort for the government that it will not ‘overpay’ for the much-needed green revolution.
As part of this, £200m ($275m) annually has been ringfenced to support offshore wind projects to try and ensure 40GW of new capacity is added to the grid by 2030. A pot of £55m has also been made available for emerging technologies. This includes projects such as the UK’s first deep geothermal electricity power plant – United Downs – in Cornwall, which we invested in last year.
While the allocation has given much needed clarity around the government’s ambitions for renewables in those sectors, which will now allow developers and investors to move forwards with more certainty, it was disappointing to see the £10m and 5GW capacity earmarked for onshore wind and solar. Surely, if speed and certainty in meeting net zero is the ultimate objective, more opportunity should have been given to the onshore pipeline? Especially given the fact that there is more onshore wind and solar PV poised and ready to be built than the allocation will allow for.
The decision to allocate just £10m suggests that the government anticipates that onshore wind and solar auction prices will be so low that these projects will be a net financial contributor to the CfD scheme. If this is the case, it may make more commercial sense for onshore wind and solar projects to take a view on the on the wholesale market, or continue to pursue alternative routes to market, rather than lock in a stable but low strike price.
Alternative revenue models include maturing corporate power purchase agreements (CPPAs), while ‘direct wire’ also holds significant potential for smaller scale onshore projects which aren’t likely to have the ability to compete in the CfD round or fall below the 5MW CfD threshold. Routes like ‘direct wire’ not only present businesses with a solution to managing energy costs in a volatile marketplace, but offer environmental incentives too, as they will be set to benefit from the renewable energy generated on site.
Developers could also take a hybrid approach, which would require them to bid for part of their generation into the CfD and part exposure to the market, creating a price hedge at a portfolio or project level. Establishing additional options for routes to market will ultimately accelerate the much-needed deployment of new renewable electricity generation projects.
New onshore wind applications in England have to demonstrate that the project is sited within an area designated for wind development by the local authority and features in the local plan, which makes planning a continued concern. As part of the CfD announcement – and reinforced in its Net Zero strategy – the government is placing more importance on the impact to local communities and giving them an effective voice on development.
We agree that this is extremely important and believe that the majority are in favour of building new onshore capacity where needed. In fact, new polling conducted by Survation and published by RenewableUK has revealed that 72% want the government to set a long-term target for onshore wind ahead of COP26.
In its current format, December’s CfD auction will define the market for the next two years. However, we risk not meeting our decarbonisation targets if we continue seeing a modest 5GW allocated to onshore technologies sporadically in the rounds to come. It was positive to see in the Net Zero Strategy that the government plans to review the frequency of these auctions and this is something we fully support – increasing the regularity will provide the certainty around new renewable development that we vitally need.
UK consultancy Regen has suggested over 10GW of onshore wind and solar is presently jammed in the planning and development process. With the realities of climate change impacting on more lives, it is our responsibility to deliver change as fast as possible and we will need to use a variety of business models, incorporating the CfD auctions, to do so.
- Matthew Clayton is managing director at Thrive Renewables