UK investors await CfD auction results

The transition to the U.K.’s new scheme for the remuneration of renewables, the Contracts of Difference (CfDs), has begun. Applicants for the CfDs were invited by the National Grid, the U.K.’s grid utility and the CfD delivery body, to submit sealed bids for renewable energy projects between 29 January and 4 February.

According to the timeframe for the allocation of the CfDs, the National Grid will notify the successful bidders to the Secretary of State for Energy and Climate Change, Ed Davey, on February 20, while successful applicants and the Low Carbon Contracts Company (LCCC) – the government’s CfD management body – will be notified on February 26. Successful applicants will have until March 27 to sign and return the contracts to the LCCC.

CfDs are part of the Electricity Market Reform (EMR), legislated in 2014. The EMR’s other pillar is the capacity markets, for which the inaugural auction ran in December.

The inaugural EMR CfD allocation round was also originally planned for December but was postponed due to one applicant making an appeal to the British energy regulator Ofgem regarding the National Grid’s decision not to qualify it.

A spokesperson for the National Grid told pv magazine that although the "bidding was delayed because there was an appeals process, this was built into the timescale, so it wasn’t really a delay."

CfDs and the future of solar PV

The National Grid and the Department for Energy and Climate Change (DECC) both declined to provide pv magazine with details regarding the number of application bids for solar PV projects.

They did, however, confirm that the number of initial qualifying applications per different CfDs group had exceeded the budget allocated to it and that this was the reason a bidding process was finally put forward.

Under the CfD mechanism, public subsidies are spread across three different pots of technologies. Solar PV projects larger than 5 MW have been grouped in Pot 1, where they must compete with onshore wind, small hydro and conventional-waste-to-energy technologies for the £65 million ($99 million) per year allocated to it. Pot 2 has been allocated the main bulk of the subsidies and comprises less-established and more expensive technologies e.g offshore wind and wave power. The DECC announced in the end of January a £25 million ($38 million) increase in this Pot’s annual budget, which has now reached £260 million ($396 million) in total. Pot 3, comprising biomass conversion plants, has currently not been allocated any funds.

The number of successful solar PV bids will dictate the sector’s future over the forthcoming years. Much of it, though, depends on how many onshore wind projects will also participate in the auction. Because the Renewables Obligation Certificates (ROCs), the UK’s former renewable energies remuneration scheme, runs for onshore wind until 2017, it is very possible the Pot 1 will be almost entirely snapped up by PV projects.

Solar PV stakeholders have been specifically critical of the government’s decision to shift the remuneration scheme for utility-scale solar from ROCs to CfDs so early and for such a small budget allocation compared to offshore wind. In addition, many scholars have accused the government that the EMR policies decide the energy mix, pick technology winners and losers, and undermine market competition.