CfD Round 5 "flops"

[dan_b]

I'm not sure what this all means - perhaps Mart can explain? But it appears the round 5 of the CfD bids hasn't been good?

https://renews.biz/88012/offshore-wind- ... 37gw-cfd5/

[nowty]

Both fixed-bottom and floating offshore wind have gone without CfDs, following warnings from both sectors the £44/MWh and £114/MWh strike price caps were too low amid 40% cost increases."

The auction had a max price on the CFD contracts. Nobody was interested bidding that low due to the recent cost increases of installing an offshore wind farm.

[GarethC]

Great disappointment. Really feels the goverment were greedy with the £44 cap. That's pretty damn cheap for large chunks of renewable electricity.

I wonder how high the cap would have to go though? Even £60 or £70 per MWh doesn't feel expensive for the huge contributions the wind farms would make.

I've just checked and the strike prices for successful onshore wind at £52 and solar at £47 bids were higher than the limit for offshore wind. How on earth is that logical?

[dan_b]

What's the strike price for Hinkley C again?!

[Mart]

I'm not sure what this all means - perhaps Mart can explain? But it appears the round 5 of the CfD bids hasn't been good?

https://renews.biz/88012/offshore-wind- ... 37gw-cfd5/

Hi Dan, as Nowty points out, the low level of the max bid was the problem The max for the last auction was £46/MWh and contracts were issued at £37.35. Note that these prices all use the 2012 baseline, so comparisons of all contracts can be made.

The actual price that the winning bids get is index linked, for instance those £37.35 contracts are currently (since April inflationary uplift) at £45.37/MWh. [Note pure coincidence that that's close to the auction £46/MWh limit.]

But .... we've now had the invasion of Ukraine, and the massive impact that's had on energy, transport and other costs like steel. So despite the inflationary uplifts on the 2012 baseline having been huge, and those uplifts appear fair, as they are based on average inflation, so far lower than industries like off-shore wind construction have seen.

It's a bit like our leccy and gas costs going up 100%+, whilst inflation is around 10%.


The RE industry complained well in advance that the max bid prices in this auction would be too low, and asked (begged) for an uplift, but it didn't happen, and the result was low interest.

Edit - Dan the HPC contract is at £89.50 (but that includes a £3 deduction from £92.50 so long as SZC is approved). The current price (index linked) is £128.09/MWh. This contract will look ever worse, as it's index linked prior to commissioning, which takes long than other RE, and for 35yrs after it starts, v's 15yrs for RE. So the earliest and far more expensive off-shore wind contracts will start to age-out in 10yrs.

[Mart]

Great disappointment. Really feels the goverment were greedy with the £44 cap. That's pretty damn cheap for large chunks of renewable electricity.

I wonder how high the cap would have to go though? Even £60 or £70 per MWh doesn't feel expensive for the huge contributions the wind farms would make.

I've just checked and the strike prices for successful onshore wind at £52 and solar at £47 bids were higher than the limit for offshore wind. How on earth is that logical?

Hi Gareth. Different technologies get different max's, so as to encourage their rollout. I think the earliest off-shore wind max's may have been higher than on-shore wind* (at the time), as the industry needed pump priming. Hence why you'll see a range of rates.

You can find them for this auction here in Appendix 1 Floating offshore wind was new in the last auction, so gets a large (£116/MWh) level to start it off, but also smaller MW limits too.


*Hi, just checked and the first offshore wind max's were set at £155/MWh, v's £95/MWh for onshore wind. But the max's in later auctions for offshore wind absolutely tumbled.

Here at page 7 are the CfD round one max's.

[Mart]

Controversary in the CfD max's isn't new. When the Gov was trying to get HPC approved, it suggested very high prices for RE even in 2030. The House of Lords actually suggested that the levels were meant to flatter nuclear:

Government prediction for 2030 (2012 prices):
Onshore wind to be in the range £45-72/MWh
Offshore wind will be in the range £85-109/MWh
Nuclear, at £69-99/MWh.
For solar they predict £59-73/MW

Note that the bids for offshore wind last year were £37.35 not £85+ and 8yrs early. But of course industry specific inflation has mucked things up this year.

I also recall that when PV was first included, the industry suggested a max bid of ~£100/MWh, but the Gov gave them £120. Nobody could understand why, and there was quite a bit of news about it (on solar related news sites) but the suspicion was that this too was to 'flatter' nuclear/HPC at the time, prior to the auction results. The bids came in at £79.20/MWh.

[Swwils]

What's the strike price for Hinkley C again?!

Originally set at about £92.50/MWh (in 2012 prices) but the strike price is not comparable because of the fundamental differences in characteristics. For instance the wind auction wont have included the needed gas peakers or grid inf.

The real problem underlying it all is to my knowledge no wind OEM has made any profit yet, they need mass produced 15MW+ turbines but it hasn't materialised. You know something is up when even siemens review things.

Germany dropped simple cfd from their sea wind act in 2022 and rejigged it. They aimed for 9GW in 2023 and 2024, 5GW in 2025 and 2026, followed by 4GW each year for the next decades... It cant compete with zero subsidy bids and high electricity prices, so not surprising to see weak uptake. Germans have a **** load of wind, and its not done them much good co2 wise compared to the investment in... As they now suck up energy from neighbouring countries with dirty generation.

Remember in the UK these cfd are funded though levies on consumer bills; I wont re-iterate how we kind of owe it to the masses to 1a. make energy cheap 1b. make energy clean.

[dan_b]

Interesting to see tidal get some more support in the Round 5 though - I know 50MW is small beans compared to the GWs of solar, but it all counts, right?

https://renews.biz/88018/over-50mw-of-t ... contracts/

[Mart]

Hi Dan, if you're interested here are the Round 5 results with all the 'winners'. I'm always impressed by how many 49.9(ish)MW PV farms get built, as this avoids more difficult approval processes.

Contracts for Difference Allocation Round 5 results