Allowing fixed-bottom offshore wind projects to apply for a CfD with pending planning consent
Currently, projects must have all required planning consents in place before they can bid for a CfD. However, due to considerable lead-in times for obtaining Development Consent Orders, fixed-bottom offshore wind projects have been under-represented in previous allocation rounds. The government believes that removing the requirement to secure planning consent prior to bidding in AR7 will attract more project bidders, who may then be able to deliver more quickly without a gap between obtaining consent and making a CfD application. It is a policy proposed in the Clean Power 2030 Action Plan, and means developers will be "at risk" for a shorter period of time, hopefully reducing project costs.
The government does recognise the risk of early-stage projects failing to deliver as a result of being refused planning consent or submitting bids that are proved to be too low. Conversely, they may incorporate a risk premium into their bids in order to combat project cost uncertainty, which will result in increased costs to consumers. However, the government believes such risks do not outweigh the benefits.
The government has asked industry for its opinion on the proposed change, as well as a host of resultant amendments; for example, unconsented projects won't be able to commit to existing time and cost restricted milestones. The government suggests that such milestones be deferred until the developer receives the planning decision. Moreover, while the government believes unconsented projects should still be subject to NDD (the Non-Delivery Disincentive that prevents projects that fail to sign a CfD with LCCC within 10 working days of offer from participating in the next two allocation rounds for which they are eligible), it suggests that NDD may be waived in certain circumstances. If approved, this would greatly accelerate many fixed bottom wind projects, which are key to delivering clean power by 2030.
Publishing a capacity ambition in place of a budget and allowing the Secretary of State greater visibility of auction information
The sixth auction round, in 2024, resulted in unspent budget for fixed-bottom offshore wind. This was due to project owners having to bid in a later round because their bid prices came in over budget. The government looks to amend auction processes in AR7 to create greater certainty of outcome by announcing a capacity ambition rather than budget, with the aim of procuring more fixed-bottom offshore wind projects. The government also plans to publish the budget after the allocation round has run (rather than prior to bidding opening, as is currently the case) in the hopes that this will encourage projects to bid at their minimum viable price.
The government is also considering allowing DESNZ to use anonymised bid information for fixed-bottom offshore wind in making its final budget decision, on the basis that the government has a greater chance of purchasing the correct volume of offshore wind. However, the Consultation does acknowledge the risk of gaming and inflated bids. While the government hopes that this regulatory change will in time apply to all technologies, for AR7 it will apply to fixed-bottom offshore wind only. Commentators have said that this is likely to be to push up prices for offshore wind, as potential auction participants will have visibility of their competitors and be able to identify where the likely breakeven points for projects are. Given that the budget could be unconstrained, this incentivises projects to bid at what they estimate will be the highest price they could reasonably receive.
Increasing contract term for future projects
Contracts with LCCC currently have a 15-year term. However, longer contracts may reduce the exposure of renewable assets to "price cannibalisation" (where renewable sources generate an oversupply of electricity, causing a drop in market prices) post-CFD, thereby reducing project risk and cost. Longer contracts would also align with increased lifespans of modern technology. The Consultation, however, does not give any indication of what this increase will look like, as the government intends to first assess how such changes will affect consumer interest. Depending on the outcome of further review, it may be that this amendment will apply only to certain technologies. Increasing the 15 year term is a policy proposed in the Clean Power 2030 Action Plan. If the 15-year term is extended, there will likely be advocacy to increase the tenor of other CfD-style support mechanics, e.g. the guaranteed strike price for sustainable aviation fuel currently being designed.
Increase Target Commissioning Window (TCW) for solar projects
Generators have a fixed TCW in which to commission their projects, after which the 15-year payment term begins, regardless of whether the project is live. While most technologies' TCW is 12 months, Solar PV has only three months (given its faster build time). The solar industry has expressed concerns that the TCW does not allow for the increasing size, and associated risk, of solar projects and requested that solar be brought in line with other technologies. The government has proposed increasing the TCW, as mentioned in the Clean Power 2030 Action Plan, but only to six months at this time.
Temporarily restricting the entry of surrendered CfD capacity into AR7
Currently, developers may reduce their contracted capacity prior to commissioning the construction of their power stations (i) by 25% before the Milestone Delivery Date; and/or (ii) by meeting only 85% (for offshore wind) or 95% (for all other technologies) of their Installed Capacity Estimate by the Longstop Date. Under existing rules, developers can then enter any surrendered contracted capacity in future allocation rounds.
However, such opportunity for capacity re-bidding may encourage generators to increase their income under CfD beyond that agreed in their original contract, with consumers ultimately bearing the additional cost. The government therefore proposes to prevent generators from bidding for previously reduced capacity in AR7, while the government reviews and clarifies its policy in time for AR8. Participants in AR7 will therefore have to confirm that their applications do not include any capacity that was previously subject to a CfD awarded in ARs 1-6.
Allowing repowered onshore wind projects to participate in AR7
The government's October 2024 response to a previous consultation confirmed that repowered wind projects (i.e. old wind farms that have their old turbines replaced with new) would be able to participate in AR7. The Consultation looks to set out eligibility criteria for such projects: for example, developers must demonstrate that the project commenced commercial operations at least 25 years before the Target Commissioning Date set out in their CfD application (thereby evidencing that the project has reached end-of-life). Developers must confirm they will not use any pre-existing assets other than refurbished foundations and show separation between existing and repowered facilities. This ensures that the projects are genuinely being repowered, rather than simply undergoing a life-extension. The key will be designing a process where repowered and new projects compete on an even playing field, so that repowered projects with potentially lower costs for some items do not crowd out new projects. If there are material differences (which may depend on the technology type), one way to solve this will be to have a separate pot for repowered projects.
Allowing floating offshore wind projects (FLOW) participating in AR7 to build in phases
Currently, only fixed offshore wind CfD participants are allowed to build in several stages, with FLOW historically being deemed too small to justify inclusion. However, the government is keen to increase the UK's offshore wind capacity by 2030 and FLOW, being situated in deeper waters further from shore, can gain access to higher, more consistent wind speeds. In a positive change for FLOW developers (and as is the case with fixed offshore wind projects), they will be able build in up to three phases, subject to a 1,500MW total maximum capacity.
The government has also confirmed that the CfD price base used in budgets will be updated in AR7 to 2024 prices (current prices being set at a 2011/12 price base) and that it will consider how frequently the price base will be updated for future allocations.
The consultation closed on 21 March 2025, meaning the government will be reviewing industry feedback and looking to publish its response. The government has already indicated that it may publish a response to budget process and visibility of auction information before responding to the rest of the topics consulted on, so that AR7 is not delayed.
