Arup predicts another CfD round

A future auction with between £300 and £400 million could unlock 3GW, claims consultants

Arup’s head of economics, Filippo Gaddo has predicted there will be another contracts for difference (CfD) round, as the current sealed bid window continues.

The sealed bid window opened at 9am on Monday (14 August) and will close at 5pm on Friday (18 August).

The auction is only accessible to “Pot 2” technologies such as offshore wind, tidal and anaerobic digestion.

Speaking to Utility Week, Gaddo said he believes “we will definitely see” another CfD round.

“If the price in the next auction is low enough and the government concludes it was value for money, you will see pressure building to do another one,” he told Utility Week.

“At the moment, there hasn’t been a change in policy regarding new onshore wind. So, if you want to achieve higher level of renewables in the mix by 2030, offshore is the way to get scale, so you will need another CfD round.”

Gaddo said another CfD round with £300 to £400 million in the pot could help bring in up to 3GW of low carbon electricity to the UK’s energy mix.

“I wouldn’t say the mechanism is painless,” he added. “It’s actually quite complex, but from a consumer perspective, it is delivering value and probably beyond what government was expecting from some years back.

“The industry has also responded to the competitive pressures,” he added.

Regarding the auction window, Gaddo said he expects to “see more aggressive bids”.

“I think you will see prices well below the strike price - probably around £80 or so. Much will depend on how the largest projects will bid such as Dong Energy Hornsea 2, which is 1,800 MW. If they managed the win a contract it will leave limited space for everyone else.

“If you say offshore wind at large scale comes down to £80 or below, I think you will then see a pressure to get closer to that level for the next one for nuclear.

“Will that mean developers will shy away and say this is not a good environment anymore? It will definitely put the pressure on.” 

The previous Conservative government committed to allocating to up to £730 million of annual support over three CfD auctions between 2015 and 2020.

Energy and Climate Intelligence Unit energy analyst Jonathan Marshall told Utility Week recently that the lack of certainty over the timetable for the remaining two auctions is likely to lead to lower prices in this round.

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