Contracts for Difference: Frequency of Allocation Rounds

Since 2014 the contracts for difference scheme has been at the heart of our efforts to diversify and decarbonise our power system. Since 2010 we have increased the percentage of power generated from renewables from 7% to 43%, creating thousands of high-skilled jobs and bringing new industries to our former industrial heartlands.

To date contracts for difference has awarded contracts totalling almost 16GW of new renewable electricity capacity across multiple technologies. Since the first competitive allocation round (AR1), it has contributed to a more than 60% reduction in the per unit price of offshore wind, with substantial benefits for consumers. We opened our latest allocation round (AR4) on 13 December 2021. It is our largest yet, with an ambition to procure more new generating capacity than the last three rounds combined.

We want to further accelerate our low carbon power generation, making the UK less reliant on volatile fossil fuels and creating more home-grown power. This will help us to deliver a fully decarbonised electricity system by 2035.

To do this we set out an ambition to accelerate the deployment of low-cost renewable generation by undertaking a review of the frequency of the contracts for difference allocation rounds. The review of allocation round frequency has now concluded.

I have decided to increase the frequency of the allocation rounds to every year, from around every two years as it is currently. The next allocation round, AR5, will be brought forward to March 2023 and it is our intention that the subsequent allocation rounds will be held every 12 months in the following years.

In parallel, we have recently opened a consultation on changes to make AR5 more effective and forward-looking, particularly on the application process for supply chain plans.

Our review suggests that the move to more frequent contracts for difference allocation rounds is overwhelmingly supported by industry. Increasing the frequency of allocation rounds will help to encourage low carbon electricity generation, which may also encourage investment in supply chains, and benefit the UK in the longer term not least by protecting consumers from potentially volatile global markets.

These more frequent rounds will also support the delivery of those renewable technologies, such as onshore wind, offshore wind, and solar PV, which are key to decarbonising the power sector, creating jobs and bringing even more investment to our former industrial heartlands. This will sit alongside the Government’s commitment to bring forward another large-scale nuclear power plant this Parliament.

The contracts for difference scheme has been successful in deploying low-carbon generation and reducing the cost of capital for renewable technologies. As more renewables are added to the system, we will continue to consider how the scheme could evolve over the longer term to ensure it reflects the impact of renewables on the wider system, including total system costs.

[HCWS600]