Consultation prior to the seventh contracts for Difference (CFD) Allocation Round proposes longer contract lengths in an attempt to reduce exercise prices and lower financing costs for renewable projects. A broader target window for solar projects is also proposed, in response to larger capacity factories in the pipeline.
The British government has proposed to increase the contracts for the difference (CFD) in its next allocation round (CFD) and the extension of the commissioning window that Solar Developers must present in their application.
First Dreef, as part of its Clean Power 2030 Plan, unveiled in December 2024, the government has now launched a consultation about CFD market reforms that sought views of stakeholders in the industry.
The CFD schedule currently supports more than 7 GW new solar capacity and the government regards it as an important mechanism for increasing the deployment to reach the 45-47 GW of the total solar capacity aimed at 2030.
Proposals include increasing the CFD contract length, which is currently being offered at a period of 15 years. The government has argued that offering longer CFD contracts can lower the financing costs and reduce the exercise price in the allocation round. This can lead to lower energy bills for consumers, the government claims.
Especially on the market for solar wind, offshore wind and onshore wind were identified as technologies that could see exercise price reductions under extensive CFD contract conditions because of the good understanding of project costs for these technologies.
Reasons for caution have also been outlined and the British government has not arranged itself with the expansion of CFD contract lengths as a preferred option.
The impact of increasing the CFD contract conditions on prices for wholesale market is not fully understood. Generators who offer on the electricity wholesal market at a lower price – supported by the knowledge of their bid will be topped up with the CFD exhibition price – can suppress the wholesale market prices, often referred to as price of the price.
A better understanding of how changes in the CFD regime would interact with proposed energy market reforms is also needed. A continuous evaluation of electricity market schemes (REMA) is expected to be closed in 2025, making it possible to reform the wholesale market of Great Britain. The Rema update of the autumn 2024 who are committed to fulfilling future obligations made under the seventh CFD allocation round, but the industry has warned a shift in a zonal price model -one of the potential rema results -can expose projects at the price -limitation risk.
Other proposals are the offering of more leeway from solar project developers about proposed commissioning data in the next CFD allocation round.
According to the current CFD rules, the developers of the Solar project must record a starting date for a three-month target commissioning window (TWC) in their allocation round. This must overlap with one of the delivery years that are offered during the CFD allocation round. Although most generating technologies that are eligible for CFD assignment TWCs of 12 months have, Solar has a three-month window due to the relatively fast pace of the commissioning compared to, for example, offshore wind.
However, the government acknowledged that this could become a “potential barrier for the use of solar energy”. This is mainly due to the increasing size of projects in the British sunfit pipeline. Although the current regulations “work well” according to the British government, it expects the growing pipeline of larger projects, including several capacity to be larger than 500 MW, that means a longer commissioning window may be required.
In a statement, Frank Gordon, director of policy for the Renewable Energy Association, welcomed the proposals. He also proposed a proposal to remove the requirements of the planning state for offshore wind to be eligible for other generating technologies.
Stream hovers from the industry have until March 21, 2025 to submit their opinion about the CFD proposals from the British government. The seventh CFD allocation round must be opened in the summer of 2025.
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