What do the CfD Round 4 results mean?
EU
RenewablesMarket UpdateAs the latest tender process is drawn to a close, inspiratia digs into the final results of the UK's Round 4 Contracts for Difference auctions. We unpick the winners and losers, and ask what this means for the UK renewables market going forward
Yesterday, the UK's Contracts for Difference (CfD) Allocation Round Four came to a close with National Grid ESO notifying the applicants of the round's final outcome. This year saw several notable milestones reached, including the first inclusion of floating offshore wind and tidal stream power, along with the return of onshore wind and solar PV to the process, for the first time since 2015's Round One results.
The Round Four process saw a record 93 projects reach a clearing price, with a total combined capacity of just over 10.79GW. This falls somewhat short of the 12GW of capacity that the government initially aimed for this round.
Overview
One of the most notable takeaways from the auctions is that all prices – with the exception of tidal – are still significantly lower than the open market price of electricity. This has led to some developers deciding not to opt for the CfD system, but to instead look at alternative revenue streams for their renewables assets such as PPAs.
CfD Round 4 results summary
|
Technology |
Total capacity (MW) |
Strike Price (£/MWh) |
Clearing Price (£/MWh) |
Pot |
Delivery Years |
|
Solar PV |
2209.41 |
47.00 |
45.99 |
Pot 1 |
2023/24 2024/25 |
|
Onshore Wind |
887.69 |
53.00 |
42.47 |
||
|
Energy from Waste |
30.00 |
121.00 |
45.99 |
||
|
Tidal Stream |
40.82 |
211.00 |
178.54 |
Pot 2 |
2025/26 2026/27 |
|
Floating Offshore Wind |
32.00 |
122.00 |
87.30 |
||
|
Remote Island Wind |
597.6 |
62.00 |
46.39 |
||
|
Offshore Wind |
6994.34 |
46.00 |
37.35 |
Pot 3 |
Source: BEIS 2022, inspiratia
Click here to find out more about the different pots of funding and how Round Four works.
Analysing the difference between the administrative strike price and the clearing price, we can observe which technologies have done the best in the auction process. Notably, solar prices are almost unchanged from the starting price, whereas energy from waste, tidal, and floating have all seen significant drops.
Administrative Strike Price (ASP) vs Clearing Price
Source: BEIS 2022, inspiratia
Offshore Wind
The lion's share of the capacity awarded in this round was for 7GW of offshore wind made up of the five projects listed below, due to come online in 2026/27.
Successful offshore wind from CfD Round 4
|
Offshore Projects |
Sponsors |
Capacity (MW) |
|
Inch Cape Phase 1 |
Red Rocket Power, ESB |
1080.00 |
|
EA3, Phase 1 |
ScottishPower Renewables |
1372.34 |
|
Norfolk Boreas (Phase 1) |
Vattenfall |
1396.00 |
|
Hornsea Project Three Offshore Wind Farm |
Orsted |
2852.00 |
|
Moray West Offshore Wind Farm |
Ignitis Group |
294.00 |
Source: BEIS 2022, inspiratia
Despite this strong showing, offshore wind has arguably got the short straw when it comes to the agreed clearance price.
For further insight into these results, inspiratia spoke to Gareth Phillips, Partner at Pinsent Masons.
"It is good to see so much of the pot awarded to offshore wind," comments Phillips, "but £37.35 doesn't reflect the significant cost increases in supply chain caused by global inflation and Ukraine. This may make procurement negotiations challenging as the margin for error is slim."
It is true that many were expecting offshore wind clearing price to either rebound or stay steady on those reached after the Round Three results in 2019. As it happens, offshore wind clearing prices continued their steady decline, dropping £2.30/MWh since the previous round.
CfD clearing price for Offshore wind by delivery year
Source: BEIS 2022, inspiratia
Other Wind
However, this trend was reversed when it comes to Remote Island Wind (RIW) projects. These projects came to under just 600MW of capacity but received an increased price when compared to Round Three results, from £41.611/MWh to £46.39/MWh.
Hexicon's 32MW TwinHub project in Cornwall marked a significant milestone in being the first floating offshore wind project to be selected. Due to come online in 2026/27, the project achieved the unique clearance price of £87.30/MWh.
The floating wind turnout is not a surprise, as we will likely see more enter the now annual CfD rounds as they progress through the Scotwind leases. Realistically from mid-2020s. Read more about this here.
Solar
Despite accounting for 66 of the 93 total selected projects (71%), solar capacity only came to 20% of the total awarded capacity due to the large number of small-scale projects, averaging around 33.5MW per project.
CfD Round 4 capacity results by technology, GW
Source: BEIS 2022, inspiratia
"Solar has done very well, securing £45.99/MWh," remarks Phillips. "But given it is widely regarded as the cheapest renewable tech, and well established, hard to understand why it achieves nearly £10 more than offshore wind."
"It is interesting to see some projects have not bid the total capacity, which appears to represent a partial hedge against power prices falling, for example, Cleve Hill [has] 350MW capacity [but only bid for 112MW]."
"These strike prices represent about 25-30% of the open market price currently available. Therefore, I expect successful bidders will want to delay triggering the contract and retain the upside." Philips concludes.
