Following a successful, record-breaking auction of the latest Contracts for Difference (CfD) in Allocation round 7 (AR7), the industry is already looking forward to the next one later this year and gathered earlier this week at the Clean Energy Summit 2030 to discuss this and what can be improved compared to the previous CfD.
Panelist Shane Power, director of investments at renewable energy asset manager NTR, highlighted how the UK’s auctions are crucial to getting projects built and the “huge gap between the levels you can secure from a revenue contract perspective, both in terms of absolute pricing and term” for a CfD compared to what can be obtained in a corporate power purchase agreement (CPPA).
“It’s very difficult for us to make project economics work without a CfD, so I think it has to be the sort of ongoing backbone of facilitating the build-out of new projects,” Power explains, adding that for AR8, one of the aspects he would like to see is greater flexibility in terms of hybrid metering arrangements, which would give developers more flexibility in terms of bidding and building the revenue mix for these hybrid projects.
This sentiment was echoed by Ben Fawcett, head of business development at developer Lightsource bp.
Fawcett highlighted another aspect that could be further improved for AR8, namely offering longer contracts. The contract duration had already been increased from 15 to 20 years in AR7, and he called for it to be extended again to 25 years for AR8.
He said this would make the financial part of a solar project even better and “also reduce bills for consumers and industrial users, which I think is very important as we have one of the highest electricity prices in Europe.”
Another aspect that needs to be addressed, according to Bob Psaradellis, CEO of solar and energy storage developer Island Green Power, has to do with the flexibility of project scheduling and how there is greater participation from larger utility-scale projects. “A big miss in my view, and they didn’t address that in AR8, is the need to be more flexible in terms of how planning cycles work, and how you can fit more and more solar NSIPs into these auctions.”
Psaradellis pointed out that four Nationally Important Infrastructure Projects (NSIPs) were eligible for AR7 and that number will increase to eleven in AR8.
He added that a key benchmark implemented in offshore wind should also be the case for solar projects, allowing them to pre-qualify for CfDs. “Today, if you don’t have consent, you can’t pre-qualify for the CfD. With offshore wind you can pre-qualify for the CfD, you can’t bid in the auction unless you have your consent, which is good policy by the way,” Psaradellis explains.
Positive sentiment after AR7, the largest auction in Europe
Overall, all panellists agreed that AR7 was a success and “couldn’t be stronger”, as said by Psaradellis, whose company was awarded a CfD for the 480MW solar project in West Burton. Psaradellis added that the UK CfD “is the most successful contractual framework for renewables in the world. It does what it is supposed to do: it mobilizes cheap capital to reduce consumer bills and facilitate the construction and operation of these projects.”
He gave the example of the West Burton project, for which the company aims to reach financial close by the end of the year with the prospect of raising £375m and has received almost ten times as many offers (£3.2bn) from 32 commercial banks.
Ana Musat, director of policy and engagement at trade association Renewable UK, added that the results of the latest CfD, which she said was the largest auction in Europe, “reinforced Britain’s reputation as a very strong market. And investor confidence in it.”
Despite the positive sentiment surrounding AR7’s recent results, panellists expressed concern about the political uncertainty unfolding in Britain.
“Political risk is a real problem in Britain right now. You never thought you’d say that, but it is, and it’s the most prominent existential risk we face in our industry,” Psaradellis said, adding:
“What we have done in response to that is we have accelerated our development spending to ensure that we get all our NSIPs, and we are the largest owner of NSIPs in Britain, into this Labor government. And that is the best thing you can do.”
