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Contracts for Difference auctions to be held annually

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The Department for Business, Energy & Industrial Strategy (BEIS) have today announced that Contracts for Difference (CfD) auctions will take place annually from March 2023, instead of every 2 years, in order to accelerate the deployment of renewables as the country transitions to Net Zero emissions.

CfDs, the Government’s “primary method of supporting renewable energy”, involve contracts between low-carbon electricity generators and the Government whereby the generator is paid the difference between the ‘strike price’ and ‘reference price’ for the electricity being produced. The strike price is a £ / MWh price for electricity, determined during the allocation round, which should reflect the cost of investing in a low-carbon energy system. Reference prices represent the average market price for electricity at that point in time.

Business and Energy Secretary Kwasi Kwarteng said:

“We are hitting the accelerator on domestic electricity production to boost energy security, attract private investment and create jobs in our industrial heartlands.

“The more clean, cheap and secure power we generate at home, the less exposed we will be to expensive gas prices set by international markets.”

The change follows the recent price cap increase as well as repeated calls from the clean energy sector to switch to more frequent Contracts for Difference auctions, in order to speed up the deployment of renewables and protect the UK from increasingly fluctuating energy prices.

The move has therefore been warmly welcomed by the sector, with Frank Gordon, Director of Policy at the REA, saying:

“The REA welcomes the move to annual CfD auctions as confirmed by BEIS today. We and others have called for more frequent auctions for a number of years, most recently in response to the energy bills crisis. More power will be needed as sectors decarbonise, and moving to renewable, domestic energy supplies is ultimately the only way to prevent us being exposed to volatile international fossil fuel prices that drive bill increases, while enabling Net Zero.”

Chris Hewett, Solar Energy UK’s Chief Executive, said:

“The UK solar industry is delighted that CfD auctions will now be every year. Solar and wind are now the cheapest forms of electricity generation in the country, and speeding up investment will help us reduce Britain’s dependence on expensive and volatile gas markets. It’s good news for the climate and the consumer.

RenewableUK Chief Executive Dan McGrail commented:

“Moving to annual CfD auctions is a major step forward which will significantly accelerate the speed of our nation’s transition to net zero.

“It’s good news for consumers too, as it means the UK will be reducing its vulnerability to volatile international gas prices and increasing the volumes of low cost renewable energy in our energy system.

More information on the Contracts for Difference scheme can be found on the Government’s website.

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