Striking Results Emerge from CfD Allocation Round 3

September.20.2019

BEIS published the results of the CfD Allocation Round 3 today. Key points to note are:

  • Record low Strike Prices
  • First participation of remote island wind
  • Several big projects missed out on CfDs
  • Only 5.7 GW of the 6GW capacity available for allocation was awarded a CfD

Record low Strike Prices

Strike Prices ranged from £39 to £41/MWh (in 2012 prices). These prices are well below both the administrative Strike Prices set by BEIS and the prices seen in CfD Allocation Round 2. For wind, this is an indication that developers are expecting that the downwards trend for construction and technology costs in the sector will continue.

First participation of remote wind

This Allocation Round saw the first participation of remote island wind in CfD auctions, with four projects winning CfDs with Strike Prices of £39 and £41/MWh. There was a particularly notable difference between the Strike Prices achieved and the administrative Strike Price for this technology (which BEIS had set at £112/MWh). This shows the impact of there being no minima for remote island wind in Allocation Round 3 – with developers perhaps feeling the need to compete with offshore wind to be awarded a CfD at all. Delivering remote island wind at these prices will be very challenging and there are other challenges arising as a result of bigger projects missing out on CfDs – as explained further below. For Orkney, projects with a capacity of approximately 36 MW were awarded CfDs – leaving developers needing to identify a further 99MW of project by December 2021 in order for the Orkney interconnector to be built.

Offshore wind and ACT were also awarded contracts, with three separate allocations made to SSE’s Dogger Bank offshore wind project (totaling 1.2GW).

Big projects missed out

Several big projects were unsuccessful in Allocation Round 3 – including Viking, Stornoway and Moray West wind farms who were not awarded CfDs.

There could be indirect consequence arising from the bigger projects missing out. For example, Ofgem’s approval of the Shetland interconnector was effectively conditional on Viking being awarded a CfD by December 2019. Other developments in Shetland could therefore be adversely impacted by the failure to award a CfD to the Viking project. In addition, Stornoway was the largest of the proposed Isle of Lewis projects and it remains to be seen whether Druim Leathann and Uisenis on their own, will be sufficient to win approval for the interconnector.

Only 5.7 GW of the expected 6GW was awarded

CfD Allocation Round 3 allowed for up to 6MW of capacity to be allocated. In the event, only 5.7 GW of capacity was awarded CfDs, indicating that one of the bigger projects (>300MW) was the plant which broke the budget.

Key takeaway

The success of the CfD auction and the low prices achieved show that developers still have significant appetite for renewables development in the UK. Coupled with the announcement by Crown Estate of Offshore Wind Leasing Round 4 it shows that offshore wind, in particular, is thriving. The prices remain challenging for developers to achieve, but remote island wind has passed the first hurdle to being a viable technology.

Further reading

The results of CfD Allocation Round 3 are available here.