Why the sun is shining for UK renewable energy

The UK’s latest?Contract for Difference?auction round?is a big advancement on the setback of 12 months ago, when no new offshore wind bids were received.

The results of this month’s CfD auction round mark a huge, 161% improvement in contracted capacity, from 3.7GW a year ago to 9.6GW. Overall, 131 new green infrastructure projects, from wind and solar to tidal energy projects, won CfDs, making it the UK’s biggest CfD auction round.

The strike prices which plant operators receive for the electricity they produce have risen as the maximum prices were recently lifted to allow for recognition of rising costs, as well as increased cost of borrowing. This has improved the appeal of CfDs and UK renewables as an asset class, particularly in an environment of volatile power prices.

Solar and offshore wind are the big winners. CfDs, providing predictable index linked revenue for 15 years, were awarded to 93 solar projects totalling a record near 3.3 GW of capacity. Having competed with onshore wind in the same pot, solar can deliver a lower price, as solar capex has developed favourably in the past year, while capex for wind remains elevated. And crucially, solar’s strike price increased. At the same time, the strike price for wind reduced as it had to compete harder with solar.

Meanwhile, nearly 5GW contracts were awarded to offshore wind, of which 3.4GW was new projects, with the remainder allocated under the permitted reduction, which sees projects with CfDs from previous rounds receive a higher price for up to 25% of their capacity. This is welcome for projects aiming to cover rising capex, which was a major reason why the UK’s last CfD round attracted no bids for the energy technology. On the flip side, rebidding against new projects has increased competition. Some of the new projects which might have got CfDs have missed out. However, it’s good to see a 400MW floating wind farm project in Scottish waters win a CfD.

The competitive auction mechanism to support large-scale renewable energy projects plays a significant role in shaping the future of renewable energy as it displaces fossil generation. Fossil fuels fell from around 50% in 2022 to about 40% of UK electricity supplies in 2023,?according to DESNZ. In the EU, some 27% of total generation was fossil-based, an improvement on the 33% recorded in 2023, according to Ember Climate data.

The UK still has some way to go to meet renewable energy targets. Annual offshore wind installation must increase by at least three times, onshore wind installations will need to double and solar installations must increase by five times, according to the Climate Change Committee.

It’s good to see so many projects benefit from the CfD mechanism, which clearly has a big role to play in boosting market confidence and influencing developers' investment decisions – vital for long-term affordability and the UK’s adoption of renewable energy.

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