Changes to CfD Auctions

[dan_b]

One for Mart in particular - UK Govt is proposing big changes to how the CfD auctions are structured for Round 7.

My brief simplistic reading of it is that UK govt wants now to publish a "capacity ambition" ie how many GW it wants to buy, instead of the "this is how much we've got to spend how many GW can we get" used previously

https://www.gov.uk/government/consultat ... on-round-7

Got to be more to it than that though.

https://renews.biz/100404/uk-commits-to ... t-reforms/

[Mart]

Thanks Dan, very interesting ...... well pretty boring I suppose. I'm certainly reading it like you.

So instead of approving schemes until their capacity at the strike price reaches the auction pot limit, they will stretch(?) the budget till capacity hits a set target. That sounds like a good idea, especially given this bit in the Gov paper:

An underspend risk can occur when an auction is comprised of a small number of large
projects. If one of these large projects bids into the contract allocation process with a bid price
that is competitive, but is ultimately in excess of the overall budget – even by a very small
amount - then this capacity will not be secured.

So I'm reading that to mean that if say 2 approved schemes are well below the pot limit, but approving a 3rd would take expenditure slightly over the pot limit (for that auction), then the 3rd scheme is dropped, despite meeting the other criteria. I'd never even thought of that before.

Perhaps the failure of round 5 to attract any off-shore bids, due to the lowered max bid limit and the spike in costs (post invasion of Ukraine), has something to do with this review too.

Never say never, bvut hard to see how this new approach could lead to less RE deployment? May mean an increase in total subsidy expenditure, but in the face of 'subsidising' AGW impacts from existing FF consumption, due to their externalities, sounds like an OK trade-off to speed up RE deployment.