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• AR6 awards — offshore wind rebounds
• Implications for AR7
• Next steps

The Department for Energy Security and Net Zero (DESNZ) has released the results of the Sixth Allocation Round (AR6) of the UK Government’s Contracts for Difference (CfD) scheme. Altogether, 131 low-carbon electricity generation projects with a combined total capacity of 9.6GW have been awarded a CfD. We look at the outcome and the implications for the next allocation round.

AR6 awards — offshore wind rebounds

The CfD scheme provides developers with price stabilisation for applicable low-carbon electricity generation projects, supporting "mature" technologies such as onshore and offshore wind and solar PV, as well as certain emerging technologies such as floating offshore wind, tidal and geothermal. Contracts awarded as part of AR6 will be signed between successful developers and the Low Carbon Contracts Company (the CfD Counterparty).

With no offshore wind projects bidding in the Fifth Allocation Round due to the low strike price, AR6 has seen a rebound in this sector. Contracts were awarded to six offshore wind projects (fixed foundations) for nearly 5GW of capacity¹, including CfDs for the Hornsea Three and Hornsea Four projects off the Yorkshire coast. Hornsea Three, when completed, is due to be the world’s largest offshore wind project at 2.9GW (having previously secured CfDs in AR4). The “Permitted Reduction” offshore wind farms have increased their strike prices for this capacity from £37.35/MWh to £54.23/MWh (both 2012 prices), while for Hornsea Four and East Anglia Two (first time bidders in AR6) it is £58.87/MWh (2012) against a maximum allowed bid of £73/MWh (2012).

A record number of solar projects (nearly 3.3GW) won allocations in the auction, with onshore wind – a technology attracting renewed focus under the new Labour Government – securing 990MW, though only one 8MW wind farm in England.

For emerging technologies, AR6 also secured 400MW for the Green Volt project to deliver electrification of oil and gas platforms in the Scottish North Sea, which at a nominal 560MW of capacity has been termed by its developers as Europe’s first commercial scale floating offshore wind project as well as the world’s largest. The award (at a strike price of £139.93/MWh (2012))² is of particular significance given the new Government’s goal of 5GW of floating wind by 2030 and the ongoing Celtic Sea floating wind leasing round. Six new tidal projects totalling 28MW were also successful (adding to over 90MW awarded in AR4 and AR5).

Implications for AR7

As we discussed in our previous bulletin, much has been riding on these AR6 results with the new Government declaring additional 2030 goals and significantly increasing the entire AR6 budget partly in response. However, with the window fast closing for new offshore wind projects to count towards the target of 60GW deployed by 2030, the fate of the offshore wind goals in particular rests heavily with the Seventh Allocation Round (AR7) due next year.

The AR7 regime is still being finalised following the conclusion of its associated industry consultation in March 2024. The previous Government announced that it would implement Sustainable Industry Rewards (SIRs), both as a prerequisite to gain access to the main CfD round and as an opportunity to gain additional revenue support. These SIRs were to be based on developers investing in new or existing manufacturing facilities situated in “deprived areas” of the UK and in more sustainable means of production globally.

Whether the new Government will proceed with SIRs (including introducing the legislation likely necessary to incorporate them into the CfD scheme) is yet to be seen, as indeed is its approach to its predecessor’s overall thinking on AR7. Maintaining any chance of achieving the offshore wind goals will require a budget significantly higher even than AR6, not to mention meeting the challenges around grid, awarding adequate leasing and ensuring the capacity of local infrastructure and supply chains is large and robust enough to enable the necessary development.

The short-term future for onshore wind in the UK is also worth highlighting. Of the 22 onshore wind projects successful in AR6, only one is in England, with three in Wales and the remainder in Scotland – a legacy of the previous Government’s more restrictive approach to permitting onshore wind farms in England and Wales. Assuming the new Government continues to loosen planning conditions, we can expect more onshore wind capacity to at least be competing in AR7. Given that the 2030 onshore wind goal has also increased, it will be interesting to see whether the technology will continue to compete with solar PV in pot 1.

Next steps

We will continue to follow these developments, as well as the role Great British Energy may start to play in terms of additional development. In the meantime, please contact your usual A&O Shearman contact for further discussion, or the named contacts on this bulletin.

Footnotes

1. 1.6GW of this capacity is going to projects that were successful in previous allocation rounds that were permitted partially to rebid in AR6. While this is part of the capacity of offshore wind farms already awarded CfDs (rather than being incremental), it prospectively unlocks the overall capacity of these wind farms.

2. Against the maximum strike price (ASP) of £176/MWh

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