The UK government has proposed creating a third Contract for Difference auction pot for offshore wind so nascent technologies like floating offshore wind have a clearer route to market, the Department of Business, Energy and Industrial Strategy said late Monday.
BEIS has launched a consultation into various amendments of the CFD scheme, including: reintroduction of subsidies for onshore wind and solar under Pot 1 for established technologies; addition of floating wind to Pot 2 subsidies for less established technologies; and create a new Pot 3 for offshore wind, which now falls between the two categories.
“Separating offshore wind into a third pot allows more potential for other technologies to successfully compete in the next CFD allocation round in 2021,” BEIS said.
While the Offshore Wind Sector Deal between government and industry sets a path to 30 GW by 2030, significantly more capacity is going to be needed to 2050, “which could increasingly affect the ability for fixed bottom wind deployment to be realized,” the department said.
“Should such risks materialize it is likely that the commercial deployment of floating offshore wind will be needed sooner than previously anticipated and at greater levels, particularly during the 2030s.”
The government plans to hold the next CFD allocation round in 2021, and to hold subsequent rounds every two years thereafter, with a proposal to extend the scheme’s delivery years to March 31, 2030, from the current March 31, 2026.
Meanwhile BEIS has proposed extending the negative pricing rule, so CFD generators do not receive subsidies if electricity prices are negative in the day-ahead hourly market.
For now subsidy payments are capped at a project’s strike price, even if prices are negative.
Furthermore, under rounds 2 and 3 of the scheme, if hourly negative prices extend for six or more consecutive hours, subsidies are suspended until they return to positive territory.
The government now wants to suspend subsidies during any and all negative price hours.
“By increasing the market exposure of CFD generators during negative pricing periods, this proposal aims to strengthen the incentives for generators to be responsive and flexible (such as by using storage) and increase value for money for consumers by reducing costs,” BEIS said.
Negative pricing is likely to increase in future, the department said. Its latest analysis showed 86 hours of negative pricing assuming 30 GW of offshore wind in 2030, rising to 399 hours assuming 40 GW in 2030, as proposed in the Conservative Party’s last manifesto ahead of the December 2019 election.
“Negative prices have become more common with the growth in wind and wind capture prices are at risk of being eroded through the cannibalization effect,” commented Glenn Rickson, head of power analysis at S&P Global Platts Analytics.
“Moves such as this may in the long run foster more investment in non-flexible assets by helping to limit the downside to prices and reducing merchant wind generators exposure to negative returns,” he said.