With the CfD AR6 auction now behind us, attention is turning to the upcoming AR7 auction, set for next year. With each Allocation Round, the government continues to refine and improve the process, aiming for more inclusivity and efficiency in distributing funding.
In this blog, we’ll dive into some key changes anticipated for the next auction - and share our insights on what they could mean for the industry.
‘Repowered’ Onshore Wind
In mid-October, DESNZ published the results of the January consultation on proposed amendments to the CfD scheme ahead of AR7. Notably, some amendments focused on the support and eligibility criteria for ‘repowered’ onshore wind projects.
Repowering refers to upgrading a renewable energy site that is approaching the end of its operational life. This process involves replacing older turbine models with newer, higher-capacity versions, effectively extending the site's lifespan by an additional 10 to 15 years. However, it should be noted that this process requires significant capital, on par with that of building out entirely new sites.
To qualify for repowering support in AR7, projects must meet the following eligibility criteria:
•They must already be eligible for the CfD scheme.
•They must align with the fundamental CfD case for intervention, which includes high upfront capital costs.
•They must have reached the end of their operational life by the end of the applicable Delivery Year in the next allocation round and not be receiving any other subsidies for electricity generation at that time.
Notably, the initial requirement for repowered onshore wind projects to retain at least their original capacity has been dropped for AR7. This decision was based on the belief that commercial incentives will naturally encourage developers to install upgraded turbines.
However, there are genuine concerns regarding the current grid connection queue. Some developers may exploit their existing grid connections to repower using cheaper, older turbine models, which undermines the goals of decarbonisation. As such, the requirement to retain at least the original capacity will be reconsidered in future allocation rounds.
Clean Industry Bonus (CIBs) Scheme
CIBs, formerly sustainable industry rewards (SIRs), aim to incentivise projects that enhance the economic, environmental, and social sustainability of offshore and floating offshore wind.
To apply, projects must outline how they will meet the government’s sustainability criteria and estimate the associated costs. Proposals will then be scored based on the quality and cost of delivering them.
Successful applicants could receive a share of the CIB budget as an additional reward to their CfD payments, provided they win a CfD contract.
Obtaining CIBs may become a prerequisite for entering the CfD round, and could also replace the current supply chain plan requirements within the CfD framework.
A key concern is that investments in deprived areas may extend beyond UK shores to other countries in the North Seas Energy Cooperation Area, such as Belgium, Denmark, France, and Germany, to name a few.
This raises the issue of UK energy consumers potentially funding projects in other nations, rather than investing in the country. There have been calls for the CIB scheme to prioritise initiatives that focus solely on the UK, with extreme opposition ruling out any country that isn’t one of the devolved nations.
On a positive note, the government has indicated its intention to expand the CIBs scheme to include more renewable technologies, although the specifics regarding which technologies and the timeline for implementation remain to be seen.
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