Government announces budget of over £1.5 billion to deliver homegrown clean energy projects and boost UK’s energy security.
Renewable industry to bid for record breaking funding as the Energy Secretary unveils the largest-ever budget for delivering new homegrown clean energy projects in the UK – boosting energy security, securing cheap power for families, and unlocking economic growth and jobs for the country.
Ed Miliband today (Wednesday 31 July) announced the budget for this year’s renewable energy auction is being increased by £500 million to over £1.5 billion – a record budget – helping build new green infrastructure as part of the mission to deliver clean power by 2030.
Funding will accelerate the delivery of clean, cheap, low-carbon electricity to families and businesses, generated by renewable energy technologies such as wind turbines and solar panels.
Families across the country have suffered during the cost of living crisis, as the UK’s over-reliance on fossil fuel markets was exploited by Putin. Investing in clean energy is part of the government’s plans to make Britain a clean energy superpower. This will boost the country’s energy independence, so that families and businesses are never left that vulnerable again.
This includes £1.1 billion for offshore wind – the backbone of the UK’s clean energy mission – which has more budget available than all of the previous auctions combined, sending a strong signal to industry to invest in UK waters.
The uplift comes on the day of the first meeting of the Clean Energy Mission Board – chaired by the Energy Secretary and attended by Ministers from across Whitehall – as part of plans for a mission-driven government. The board will meet to ensure a relentless focus on delivering the mission of clean power by 2030 and accelerating towards net zero.
Energy Secretary Ed Miliband said:
Last year’s auction round was a catastrophe, with zero offshore wind secured, and delaying our move away from expensive fossil fuels to energy independence.
Instead, we are backing industry to build in Britain, with this year’s auction getting its biggest budget yet. This will restore the UK as a global leader for green technologies and deliver the infrastructure we need to boost our energy independence, protect billpayers, and become a clean energy superpower.
Industry will now bid for a share of the funding through the government’s sixth renewable auction – known as the Contracts for Difference scheme – which provides developers with initial subsidies for clean electricity projects across Britain with a built-in design to keep costs low for billpayers.
These subsidies are paid back when wholesale electricity prices are higher than the agreed Contract for Difference price. This was seen over Winter 2022/2023, when Contracts for Difference payments reduced the amount needed to fund government energy support schemes by around £18 per typical household.
The scheme’s design means the central government’s budget will not be impacted, following findings from a Treasury spending audit revealed £22 billion of unfunded pledges inherited from the previous government.
Overall, the funding uplift represents more than a 50% increase on the budget previously set in March, driving clean energy investment in the UK, supporting high quality jobs in industrial heartlands and coastal communities, while protecting household bills from volatile fossil fuel prices.
Energy Minister Michael Shanks said:
It is our mission for the UK to be more energy secure and to do that we need more renewable energy projects connected to the grid and powering our homes.
Increasing the budget by more than 50% will boost industry confidence to back clean energy, attracting cutting edge clean technologies to Britain as we accelerate to a decarbonised power sector by 2030.
The Contracts for Difference scheme works by developers bidding for contracts to help deliver renewable energy projects, with the scheme providing a guaranteed price for the clean electricity they generate. This gives industry greater certainty to invest, knowing that when electricity prices fluctuate, they will always get a set price for their projects.
The scheme’s design awards contracts through a series of competitive auctions, where the lowest price bids are successful – providing value for money and cheap power for consumers.
Building new, clean renewables also reduces exposure to volatile global gas prices which drove peak average wholesale electricity prices to record highs in 2022. Investing in renewables will protect household bills in the long-term and put Britain in control of its energy security.
Developers can bid for more funding and bring forward more renewable energy projects, which will deliver the government’s 2030 clean power target while supporting local economies grow across the country.
Following the increase, the Allocation Round 6 (AR6) budget includes:
- £1.1 billion for offshore wind, an uplift of £300 million
- £185 million for established technologies such as onshore wind and solar, an uplift of £65 million
- £270 million for emerging technologies such as floating offshore wind and tidal, an uplift of £165 million
The increase means the AR6 budget is 7 times higher than that of Allocation Round 5 (AR5).
Responding to the government’s announcement on the next Contracts for Difference auction round (AR6), Energy UK’s chief executive, Emma Pinchbeck said:
It’s a real boost for our clean energy ambitions that the upcoming auction round will now be able to deliver more renewable power. The sooner we can get new wind and solar projects up and running, the sooner we can boost our energy independence with clean, homegrown power that reduces our reliance on expensive foreign gas and helps protect us from a repeat of the price shocks that have hit customers hard in recent years.
Offshore wind is critical to hitting the government’s 2030 target and we know that the vast majority of this capacity must be delivered through this auction round and next year’s. That remains a huge challenge but this is certainly a big step in the right direction and another welcome demonstration of the government’s ambitions.
As the latest figures show, renewables supplied almost half of the UK’s power last year so we’ve already seen what can be achieved – not just through generating our own clean energy but also how such projects can bring investment, growth and high-quality jobs to all parts of the country, boosting local economies and supply chains.
Dan McGrail, Chief Executive of Renewables UK, said:
It’s great to see government choosing to unlock more investment in renewable energy projects by increasing the budget for the next Contracts for Difference auction. These new wind and solar farms will improve our energy security, drive economic growth, support thousands of new green jobs and ensure we continue to create a lowest cost electricity system for billpayers.
This builds on a series of positive announcements from government which are increasing investor confidence in the UK, including ending the ban on onshore wind in England and approving new large-scale solar farms.
This auction will not unlock investment in all shovel-ready projects, so the government will need to ensure that the next auction rounds focus on project delivery to ensure we achieve the Prime Minister’s clean power mission and increase the confidence of investors in the UK’s supply chain.
Neil McDermott, CEO, LCCC, said:
The increase in budget allowance acknowledges the critical role the Contracts for Difference plays in accelerating Net Zero.
At LCCC we stand ready to work with new and existing generators to bring new renewable generation online.
Claire Mack, Chief Executive of Scottish Renewables, said:
Heightened ambition for 2030 must be matched by bold action and the welcome increase to the Allocation Round 6 budget sends a positive signal to industry that the UK government is serious about achieving its clean power mission.
To maintain our globally competitive advantage, empower our supply chains and enrich our communities, it is essential that we enable deployment at pace across all clean energy technologies through the Contracts for Difference scheme.
Unleashing the full potential of Scotland’s renewable energy pipeline, in particular floating and fixed offshore wind, will require building on Allocation Round 6 to maximise deployment through future allocation rounds.
This will drive economic growth, deliver energy security and achieve the UK government’s clean power mission.
Last week the government launched Great British Energy in partnership with the Crown Estate, backed by £8.3 billion of new money, which is estimated to create up to 20-30GW of new offshore wind developments reaching seabed lease stage by 2030.
The budget increase for Contracts for Difference marks the latest milestone in the government’s clean energy superpower mission, building on the lifting of the onshore wind ban and the approval of major solar farms powering the equivalent of almost 400,000 homes.
Now the budget has been set, the auction will take place in August with successful projects to be announced in September 2024.
A Contract for Difference (CfD) is a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), a government-owned company.
CfDs work by guaranteeing a set price for electricity – known as a strike price – that generators receive per unit of power output.
When the market price for electricity generated by a CfD Generator is below the strike price set out in the contract, payments are made by the LCCC to the CfD Generator to make up the difference. However, when the market price is above the strike price, the CfD Generator pays LCCC the difference.
The 2-way design of the scheme also protects consumers and businesses from future uncertainty on the global energy market. This is because when wholesale electricity prices are higher than the agreed CfD price, generators pay back into the scheme which is then passed back to billpayers.
In this auction the maximum strike price for this auction are as follows:
- offshore wind £73/MWh
- onshore wind £64/MWh
- solar £61/MWh
- floating offshore wind £176/MWh
- geothermal £157/MWh
- tidal £261/MWh
Today also saw the first inaugural meeting of the Onshore Wind Taskforce which brings together industry experts to accelerate the development of onshore wind across England.
Explanatory notes
Pot budgets, including this year’s £1.555 billion budget split across the 3 pots, are presented in 2011-2012 prices, in line with what has been published in the Budget Notice. These figures are:
- an estimate of annual support in the years following deployment. Actual annual figures will vary over the lifetime of the contract depending on future wholesale electricity prices, and outcomes of the auction process
- equivalent to approximately £2.215 billion in today’s prices, based on CPI inflation (June 2024 CPI, ONS data)
Source: https://www.gov.uk/government/news/record-breaking-funding-for-clean-energy-in-britain?utm_source=chatgpt.com
