Allocation Round 8 (AR8) for the UK Contracts for Difference (CfD) scheme is highly anticipated in the UK.
Mergers and acquisitions are at an all-time high, and CfD-secured projects are the focus for developers looking to acquire, build, own and operate.
The previous award round, AR7, set a precedent for success, with contracts awarded to 157 sites across 155 projects (West Burton Solar Farm received three separate contracts) a total of 4.9 GW. Three months after the record results, the feeling in the market remains positive.
This is because the window for AR8 applications opens in July, which is a surprise as AR7 results were announced after a five-month delay. Results for AR8 could be available as early as October, although this is likely to be delayed.
AR7 has won contracts for almost 50% more solar capacity than the previous AR6. Notably, though AR7 saw average project capacity decrease for the first time in the history of the CfD scheme.
Looking at the potential for AR8, data from Solar Media Market Research shows that there is slightly less capacity eligible to bid than for AR7: 12 GW is currently eligible, versus the 14 GW seen before AR7.
This decline is largely due to the slow planning process, with only 4.3 GW approved in the last ten months.
A significant portion of that capacity, approved since the last round of allocations, comes from Nationally Significant Infrastructure Projects (NSIPs).
In total, more than 5 GW of approved NSIPs in the UK do not have CfDs. It is striking that only one NSIP was successful in AR7, namely West Burton. The question for AR8 is therefore whether NSIPs will play a more prominent role.
While there are several reasons why AR7 was less attractive to NSIPs, including a lower strike price, timelines likely played a major role. For many projects, the fixed connection dates for the electricity grid were postponed from 2027 to 2029, which meant they were no longer in line with the CfD schedule.
During the recent market activity, Low Carbon was sold his Gate Burton NSIP to EDF, Ampyr Energy purchased the East Yorkshire Solar Plant from BOOM Powerand others are currently going through the sales process.
The 2029 connections and the prospect of being sold for development put many of these projects on the perfect timeline for AR8.
Figure 1 highlights the imbalance between eligible projects of >100 MW and those that have received a CfD. It is also interesting to see that the 49-100MW section is growing year on year as the market moves towards business models that focus on fewer individual assets with larger capacities.
One of the eligibility criteria introduced for this upcoming round is that projects that have previously surrendered CfD capacity cannot bid again. It is unclear how many of the above-mentioned projects will be affected, but it is likely that this will change little. Only once before has a developer re-offered previously surrendered capacity.
Naturally, not all eligible projects will apply for a contract. Some developers prefer to secure revenue through corporate energy purchase agreements (CPPAs), as in the example of Liberty Global.
Others will have to wait because they have received offers for Gate 2 Phase 2 grid connection and will therefore not come online before 2030.
While the government’s ambition is high, it is also not quantifiable, so the success of this round remains to be seen. Yet CfDs remain one of, if not the main talking points when selling projects and seeking investment to build, so a significant number of eligible <100MW projects are expected to apply. With almost 7 GW of that capacity now eligible, we could potentially see another record-breaking round.
All the data above comes from Solar Media Market Research analysis, which can be accessedhere. Send an email to book a demo and access the data [email protected].
