For the second week in succession the UK energy sector received positive news from the UK Government. It’s a step towards achieving our net zero ambition and realising the economic opportunity of clean energy in the UK.

Contracts for Difference

First we learnt that the Government had listened to the industry and taken action to respond to the underwhelming results of the last Contracts for Difference auction (AR5) in September. 

Contracts for Difference (CfDs) play a crucial role in promoting renewable energy development in the UK. They are a financial instrument designed to provide long-term price stability and revenue certainty for renewable electricity generators. The Government has responded to the fact that there were no bids from offshore wind projects in the last auction round. This was as a result of cost inflation meaning that contracts at the levels proposed would have made projects financially unviable.

For AR6 in spring next year the Government has increased maximum bid levels for all qualifying technologies by between 29 per cent and 66 per cent. While the cost of deploying renewables technologies has fallen over the past decade, inflation throughout the last two years has pushed costs up.

Autumn Statement news

Secondly, a slew of measures was announced in the Chancellor’s Autumn Statement that will have a significant impact on the sector with the ultimate aim of accelerating the deployment of renewables technologies.

Ahead of the statement there were calls for the Chancellor to match investment plans in the US (Inflation Reduction Act) and the EU (Green Deal Industrial Plan). Ultimately what was announced fell short of those measures but nevertheless is positive news for the sector. 

• Central to the announcement was the Green Industries Growth Accelerator which commits £960m to support investment in manufacturing capabilities in Carbon Capture Usage and Storage (CCUS), hydrogen, offshore wind and nuclear.
• Constraint in the grid network is a major reason for the slow deployment of renewable generation and energy storage projects. With the UK targeting a fully decarbonised grid by 2035, measures were needed to release capacity and speed up access to the grid. Alongside the Electricity System Operator, the UK Government has published a Connection Action Plan with the core aim of releasing 100GW of blocked capacity from the grid queue and significantly reducing timescales for projects to connect to the grid.
• Also announced were measures to reform planning for energy transmission projects including the introduction of new community benefits, the introduction of a critical national priority criterion across nationally significant low carbon energy infrastructure to speed up the approval system, cut pre-examination timeframes by half and extend PD rights for EV charging infrastructure.
• The Energy Generator Levy was introduced in the Spring Budget in response to the surge in electricity prices and whilst the levy will continue to apply to the oil and gas sector, renewables technologies will now be exempted. 

Summary

In the round, the announcements over the last few weeks represent a real shot in the arm for the sector that should get investment going in the short term. But there remains a long way to go to get the UK’s energy system decarbonised while balancing consumer affordability and allowing resilience to be built into the system. They do not guarantee the 2035 target being achieved. 

To succeed in delivering a low carbon grid, stakeholders including developers, grid operators and authorities have to work collaboratively and at pace towards net zero and grasp the economic opportunity of clean energy.

Further Information

Contact Nick Green