Back to News
The UK government has announced the awardees of its latest Contracts for Difference (CfD) energy auction. The sixth allocation round (AR6) proved more successful than the fifth (AR5), supporting low-carbon infrastructure with contracts awarded to 131 projects totalling over 9.6GW. This marks a significant increase from AR5, where just 3.7GW worth of contracts were awarded across 95 projects in September 2023. The results of this allocation round can be seen as a positive for the UK energy storage industry.
What are CfD auctions?
Introduced in 2014, CfD auctions are a UK government mechanism to support low carbon energy generation by providing price stability. Under a CfD, a generator (such as a wind farm) agrees to a fixed “strike price” for the electricity it produces. If the market price (the “reference price”) falls below the strike price, the government pays the difference to the generator. Conversely, if the market price rises above the strike price, the generator pays the difference back to the government. This ensures a stable income for the generator, encouraging investment in low-carbon energy sources. It is similar to cap and floor programs that the government announced it would use in its long duration energy storage development plan.
Structure of AR6
Technologies were categorised into three distinct pots for CfD allocation. Pot 1 included solar and onshore wind, while floating offshore wind and was part of Pot 2. Pot 3 was reserved for other offshore wind projects. Recognising the diversity of projects in the sixth allocation round (AR6), the government divided Pot 3 further into two categories: Offshore Wind Permitted Reduction projects and new Offshore Wind projects. Offshore Wind Permitted Reduction projects are those that secured a CfD in a previous round but opted to reduce their capacity by up to 25% to re-bid in AR6, reflecting the economic challenges posed by earlier strike prices in the current market environment.
Outcomes of AR6
AR6 represents a significant recovery in the scheme, marked by the resurgence of new offshore wind projects. In contrast, AR5 failed to attract any new offshore wind projects, largely due to the government’s poor pricing assumptions. Among the new projects receiving contracts is Hornsea Project Four, a 2.4GW wind farm in the North Sea, which is set to become the UK’s second-largest wind farm. Additionally, contracts were awarded for 93 solar projects, 22 onshore wind projects, six tidal stream projects, and one floating offshore wind project. Moreover, seven offshore wind projects were granted Permitted Reduction contracts, while two new offshore wind projects secured contracts.
Rho Motion’s evaluation, a win the energy storage sector
With over 8GW of new renewable energy projects announced, the need for robust energy storage systems becomes critical. The intermittency of renewable generation poses challenges, including grid congestion and transmission issues. The UK already leads Europe with the most mature storage market and on a global stage has significant utility scale and residential storage installations. By the end of 2025, the UK could have over 20GWh of BESS operational. However, this capacity will need to grow significantly as the grid continues to decentralise and integrate more low-carbon technologies.
More Information
For more information on how our research can support you, get in touch.
Image Credit: Adobe Stock
Sources: Gov.uk
For full access to our news and insights, log in to our Membership Platform
If you’re not yet a member and would like a trial, fill in the form below.