(Bloomberg) — The U.K. government plans to double the amount of renewable power supported by the country’s main subsidy mechanism and create a new structure that will bolster a variety of technologies, speeding up a wave of new investment.
The next round of the contracts for difference system will clear the way for as much as 12 gigawatts of new green power capacity across three different technologies, according to a statement from the U.K.’s Department for Business, Energy and Industrial Strategy. That’s up from 5.8 gigawatts that won contracts last year, an advance that will help the government deliver on Prime Minister Boris Johnson’s plan to cut emissions.
Offshore wind is central to that plan, with the government aiming to quadruple capacity to 40 gigawatts by 2030. The new expanded auction round could drive more than 20 billion pounds ($26.7 billion) of investment, according to industry group RenewableUK.
The contracts for difference mechanism has been crucial to bringing down the cost of offshore wind farms in recent years. Developers bid to sell power at fixed prices for a set period of years. If the market price for power is below the agreed contract, the government pays the difference. But if the power price is above the contract price, then the owner is the one to pay back the difference.
Under the new plan, the government has created three different groups of technologies, with developers competing for contracts only with other projects within their group. The government hasn’t said how much of the 12-gigawatt capacity will go to each technology group. The bidding round will open next year.
|Pot 1||Established technologies: onshore wind and solar PV|
|Pot 2||Less-established technologies: includes
floating offshore wind, advanced conversion technologies and tidal stream
|Pot 3||Offshore wind|
The change could be crucial for a variety of developers. Onshore wind hasn’t been eligible for support in recent years. Last time the government awarded projects, the process was held up in court because a developer said the exclusion of onshore wind from the system was against the public interest.
The separate pots could be welcomed both by onshore and offshore wind developers, whose projects are still more expensive than those on land. Some major developers of wind farms at sea, including Iberdrola SA, Orsted A/S and Vattenfall AB are expected to bid in the next round.
The new auction structure may also set up the U.K. to be a leader for floating wind, a new and expensive technology that could open up areas of the sea around the world where the water is too deep to fix turbine foundations into the seabed.
Power stations that have been converted to burn biomass instead of coal will be excluded from future contracts for difference rounds.
The government also launched a consultation focused on the entire renewables supply chain and how to increase the competitiveness of domestic manufacturers.
(Updates with chart and investment figure)
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