Annual auctions and strengthened Supply Chain Plans - government confirms changes for UK CfD auctions

United Kingdom

On 3 May 2022, the government published its response (“Government Response”) to the February consultation (the “Consultation”) on technical changes to the Contracts for Difference (“CfD”) scheme ahead of the fifth allocation rounds (“AR5”), confirming a number of decisions taken by the government to bolster the Supply Chain Plan (“SCP”) process and CfD delivery. For key points in the Consultation, please see our commentary here.

Alongside the Government Response, the government published a second, follow-up consultation on the SCP Questionnaire that will be used in the next Allocation Round.

 

Key points from the Government Response

The Government Response largely confirms the proposed positions announced in the Consultation. The main points of which include the following:

Supply chain changes:

SCP Interviews: The “Interview with Applicants” stage of the SCP process has been confirmed with the addition of “feedback sessions”.

SCP pass-mark and inclusion of Floating Offshore Wind: The pass mark for each section of the SCP from 50% to 60% is confirmed on the basis that this will help to drive more ambitious commitments. To guide the content of the responses, the government has decided to carry forward the proposed new template for the next SCP Questionnaire. This proposed new template, which requires each question to be compartmentalised into criteria established in the scoring guidance of the consultation, as well as changing the layout of questions, will provide more clarity to applicants regarding the government’s expectations.

Further, the government has also decided to incorporate Floating Offshore Wind projects (even if they are below the 300MW threshold) in the SCP process, bearing in mind its deployment potential in the medium term. Taking into consideration the concerns around the SCP process being particularly burdensome for smaller projects, the government will proceed with a bespoke, shorter questionnaire for Floating Offshore Wind with fewer data reporting requirements.

Duration of SCP Statement of Approval: SCP approvals were previously valid for 12 months. The government has decided to shorten this period to 9 months, whilst maintaining the Secretary of State’s discretion in approving SCPs.

Non-Delivery Disincentive (“NDD”)

As was anticipated in the Consultation, the NDD period will be extended to the next 2 applicable allocation rounds (i.e., 2 years). This will apply where a CfD offer is not signed or if a CfD is entered into and consequently terminated in specific circumstances of non-delivery.

 

Next Steps

The Government Response confirms the CfD policy applicable to contracts awarded through the next allocation rounds, AR5, due to open in March 2023.

The government aims to lay regulations before Parliament to incorporate these changes by amending existing legislation. The changes will also amend certain provisions in the CfD Allocation Regulations 2014 to reflect changes to the valuation formula introduced for Allocation Round 4.

Consultation responses on the SCP Questionnaire close on 14 June 2022 with the aim that this questionnaire will be used in the SCP assessments in the upcoming allocation round (AR5) in 2023.

The CfD regime is now well established and while more changes are being considered by the government, such as on a more efficient way for running allocation rounds annually, few changes are expected for the forthcoming allocation round, thus leaving other factors such as strike price to be the key drivers in the competitions.