Progress on renewables but challenges remain

There was big news for renewables announced this week: the results of the most recent auction round of the contracts for difference (CFD) will provide for 14.7 GW of renewable energy, enough to power 16 million homes. This is a record-breaking figure, surpassing the previous record 11 GW in 2022. 

For background, the CFD is the government’s primary financial mechanism to support renewable energy projects. Typically, renewable energy projects that have already achieved planning consent apply, giving them the financial certainty to move into construction. It’s not a subsidy, but a way to provide long-term financial stability for developers.  

Through a sealed bid, developers set the lowest energy price at which they could afford to sell the energy they generate. Projects with the lowest prices are awarded contracts until the budget runs out. The government then pays the difference if energy prices drop below the strike price, and developers pay back the difference if energy prices go above the strike price.  

Of the 14.7 GW of projects that won this year, most were for offshore wind (8.4 GW), followed by solar (4.9 GW), and onshore wind (1.3 GW). Tidal energy projects also won a small piece of the auction, supporting 20.9 MW for this nascent industry.  

Sceptics will point out that, despite being record-breaking, these results aren’t enough to meet current energy targets. The Clean Power 2030 Action Plan set ambitious targets to double onshore wind and triple both solar and offshore wind by 2030, but these results don’t get us to that end goal. Onshore wind, for example, needs closer to 3 GW each year to make the target by 2030 - twice the announcement from this week. If the goal is to actually have projects built and operational, then we needed to front-load the financial decisions. Offshore wind projects in particular have a very long lead time, so this year’s auction results were critical to get projects ready in time.  

The problem is that there aren’t enough projects making it through the pipeline to reach the target. The CFD is just one piece of the puzzle, the last step in a rather chaotic and disjointed process whereby a developer has to find a grid connection, find land, and get through planning, all without knowing if they will be able to secure funding. Large-scale renewable energy projects are now defined as critical national priorities, but that doesn’t mean it’s easy to develop them.   

The big issue continues to be grid connections. Grid reform was touted as a way to clean out the zombie pipeline so that ready projects could move forward.  

While it seemed like a reasonable goal, the implementation was less than optimal. After waiting a year, developers have now been informed whether their projects get to keep their connections or go to the back of the queue. Many very viable projects lost their connections. Now we wait for another round of appealing and re-sorting. Just this Monday we saw further chaos as Ofgem wrote about its disappointment that protected projects (those that are most ready to connect) will now be delayed because the grid connections aren’t ready. Some developers are walking away from their projects altogether, as the uncertainty levels are just too high.  

The silver bullet may well be the new Spatial Strategic Energy Plan (SSEP) for the longer term. 

 SSEP aims to set regional goals for each type of energy technology, solving some of the disconnects between developers and network operators and avoiding clumpy distribution of projects that lead to cumulative impact concerns (see this link for further analysis on SSEP). Engaging now with Department for Energy Security and Net Zero will prove essential to developing the SSEP in a way that works for the industry, as well as stakeholders and local communities. 

In short, the Allocation Round 7 (AR7) is the UK government's seventh auction for renewable energy and the results are good news, but not great, and grid reform is a good idea, with a problematic rollout. We can maintain momentum without racing to the finish line and tripping on our laces. By working with industry and bringing communities and stakeholders along for the journey, we could build a functional system that takes us to 2030 and beyond.