The Department for Business, Energy & Industrial Strategy (BEIS) recently announced the draft details of the second Contract for Difference (CFD) Allocation Round for pot 2 ‘less established’ technologies.
On Wednesday 9 November BEIS announced the draft details of the long awaited second Contract for Difference (CD) Allocation Round for pot 2 ‘less established’ technologies.
The CFD is a contract between the government and a renewable developer to exchange the difference between an agreed strike price and the wholesale electricity price. This provides stability and predictability to future revenue streams which will incentivise investments in new low-carbon electricity generation in the UK.
KPMG expects this allocation round will be heavily oversubscribed and will move to a competitive auction in late April. With an eye to the recent offshore wind cost trajectory in neighbouring European tenders, the cost of offshore wind is expected to be well below the administrative strike price (ASP) caps set by BEIS. However, the UK has opted to continue with the supply chain plan requirement, in a manner which is almost identical to that of the 2014 round, which will place some upward pressures on costs. Fuelled technologies could play a role in this auction, however, costs will need to reduce substantially to compete with offshore wind. The role of the ‘maxima’ (maximum cap) is expected to have limited impact in the auction.
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