The UK is examining options for its contract-for-difference (CfD) scheme – widely hailed as one of the most successful renewable support mechanisms globally – in a bid to future-proof its market structures for the nation’s push to net zero.

Officials opened a consultation over the ability of the CfD – and other possible alternatives – to deliver the steady volumes of capacity Britain needs to meet its 2050 objectives, in a fast-changing, complex market that will feature more variable generation plants operating alongside, or linked to, storage or other energy sources such as hydrogen.

Successive CfD-based auctions have since 2015 driven down the cost of power from UK renewables deployments, especially in offshore wind, and have been praised for the visibility over revenues they give investors over the 15-year term of the contracts awarded, making up the difference for plant operators if the market falls below a set ‘strike price’, but requiring them to pay the difference if the wholesale price is above it.

Among the 16GW of development underpinned so far by the CfD is the world's largest offshore wind farm, the 3.6GW Dogger Bank, which secured a deal in the last round of auctions in 2019 at around £40/MWh ($53.30/MWh), a record low rate unimaginable for wind at sea just a few years earlier.

While the scheme has proved a hit with developers – who regularly hold it up as an example to other governments – the UK's Department of Business, Energy and Industrial Strategy (BEIS) is worried it may not fit the shape of a future power market where other mechanisms such as corporate PPAs play a bigger role, and storage makes the day-ahead price a less decisive factor than now.

Given the love among investors for CfDs, UK energy officials were at pains to stress: “In the near-term we anticipate changes will be aimed at more effectively integrating intermittent generation rather than completely reforming the way we incentivise investment in renewables.

“Similarly, whilst we need to begin to consider the longer-term market design for the delivery of net zero, we are not imminently embarking on a major restructure of our market framework.”

A statement announcing the consultation added: “In deciding the right level of exposure to wholesale market prices, we must strike the balance between incentivising efficient behaviour based on the needs of the market and providing security of price to facilitate lower costs of financing.”

The UK, which will hold its next CfD auction round next year under the current system, today unveiled its long-awaited Energy White Paper on the path to meet its net zero goals.

BEIS is inviting responses to its consultation by 22 February.

Transition

UK looks at future options for developers' favourite CfD