UK Government publishes results to the Contract for Difference Allocation Round Six

Key points

On 3 September 2024, the results of the 6th CfD allocation round (“AR6”) were announced by the Department for Energy Security and Net Zero (“DESNZ”). Of the 131 CfDs awarded, offshore wind secured the highest capacity at nearly 5.3GW – while not reaching the record set in AR3, this is a turnaround compared to allocation round 5 (“AR5”) where no bids were received for offshore wind projects. This round was also significant for solar project, with over 3 GW of capacity awarded CfDs.

The first of the new CfD projects are expected to come online by 2026 with the final delivery year for Pot 2 being 2029.

We have set out here the key highlights and commentary from this allocation round.

A reminder: Budget was increased to accommodate industry feedback

The lack of bids in respect of offshore wind projects in AR5 was a clear message to the government that the terms were not sufficient to support offshore wind projects in the current supply chain environment. The revised budget for AR6 indicated that DESNZ had taken this feedback on board, as offshore wind had more budget available to it in AR6 than all of the previous CfD rounds combined. Namely, on 30 July 2024, the budget for AR6 was increased to £1.555 billion. This was an increase of over 50% from the original budget set in March and 7 times higher than that of AR5.

Auction/ Successful Applicants

A total of 131 projects (with a combined total capacity of 9.6 GW) were awarded. The full list of successful applicants can be found here. Of this list, 9 offshore wind contracts were awarded, including to Hornsea 3 and Hornsea 4, and Green Volt, currently the largest floating offshore wind project in development.

This being said, 1.6 GW of the offshore wind capacity awarded a CfD in AR6 is a "permitted reduction", with the only new projects being Hornsea 4 and East Anglia Two. This means that the majority of the successful offshore wind projects in this round had originally bid in to AR4 and resubmitted capacity in AR6 and so were mainly looking to take advantage of the higher levels of support. From a price perspective, it is worth nothing the difference between strike prices for AR4 (£37.35) and today's results mean a 45% price increase in respect of the “permitted reduction” projects. Thus the results are mixed from the perspective of securing capacity needed to meet the UK’s offshore wind targets.

Similarly, for floating offshore wind, the 400 MW awarded all went to Green Volt, which is expected to provide 560 MW of floating offshore wind capacity in total. This means that approximately 250 MW of floating offshore wind projects were unsuccessful (or which chose not to bid this time around) and will have to wait until AR7 to resubmit.

Alongside offshore wind, 6 new tidal projects were awarded CfDs as well as 93 solar projects, and 22 onshore wind projects.

It is notable that the total onshore wind capacity in AR6 is significantly lower than last year with only 900 MW compared to last year’s 1.3 GW. The reason for this may be due, in part, to the increase to strike price for solar projects in AR6 (the strike price £6/MWh lower than for onshore wind in AR5), meaning that more of the AR6 pot will have been taken up by solar projects this time around. However, when broken down by region we can see that only 8 MW of onshore wind secured a contract in England, compared to Scotland's 900MW. With the recent lifting of the de facto ban on onshore wind developments in England by the new government, an increase in onshore wind capacity is anticipated in AR7.

In respect of price, while clearing prices for solar, onshore wind and offshore wind were awarded at over 18% below their administrative strike prices, clearing prices have increased for most technologies to roughly £50 for onshore wind and solar, £140 for floating offshore wind.

While this suggests that the clearing prices achieved in AR6 are more viable than they were for AR5, initial comments from industry indicate that, particularly in relation to wind developers, the prices remain too low to develop projects economically given the higher costs of finance and enduring supply pressures. As such, it will be interesting to see over the next couple of weeks whether any projects decide not to progress with their CfDs.

Next Steps

Successful applicants are required to return signed contracts to LCCC within 10 working days of the offer being made, initial conditions precedents needing to have been met 20 working days thereafter.

If a generator is successful in the auction but allows its offer for lapse, the CfD site will be subject to the 'Non-Delivery Disincentive' and will be excluded from making a CfD application for the following two CfD allocations rounds. As a reminder, the Non-Delivery Disincentive also applies where a Generator enters into the CfD Agreement and the CfD Agreement is subsequently terminated before the Milestone Delivery Date or fails to achieve the Milestone Requirements or fails to deliver the Milestone Requirement Notice by the Milestone Delivery Date.

The capacity which is to come online as a result of the successful projects in AR6  presents an important step to achieve the target set out by the new Labour government to achieve a zero-carbon electricity system by 2030. However, to achieve this target Allocation Round 7, which is due to launch in 2025, will still need to deliver significantly more low-carbon generation projects. Given the capacity that did not secure a contract in this round, and with favourable auction conditions, industry predictions suggest that we can expect an additional 10GW of offshore wind in Allocation Round 7.

Co-authored by Nevine Singer, trainee solicitor at CMS.