Energy Buzz: CfD AR7 - Proposed reforms to the CfD scheme to meet the UK’s clean energy goals

1. Relaxing eligibility criteria

The CfD scheme has traditionally targeted projects that are substantially developed, including full planning consent. As the government puts wind at the heart of its energy strategy, it proposes to relax the eligibility criteria for fixed-bottom offshore wind projects, which can face lead-in times of more than a decade – allowing such projects that have yet to secure full planning consent to participate in ARs.

To mitigate the risk of awarding CfDs to projects that might ultimately fail to obtain planning permission, the proposal would require unconsented projects to have reached an intermediate point in the planning process by a cut-off date, subject to evidence of progress. Two threshold dates are under consideration:

• the CfD application deadline (the government-favoured option, although it comes with a higher risk of including projects that may not meet the 2030 goals); or
• 13 December 2024 (the publication date of the 2030 Action Plan).

Most respondents supported this proposal, prompting a follow-up consultation on amendments to the Standard Terms and Conditions for a CfD.

2. Key amendments to CfD standard terms and conditions

To implement the relaxed eligibility while avoiding a two-tier system in which unconsented projects have more/less strict commitments or penalties, the following changes to the CfD Standard Terms and Conditions are considered to reflect the reality that unconsented projects will be unable to commit to firm timings for planning-related reasons:

• enabling the National Energy System Operator to exclude any project whose planning application has been refused and with no right of judicial review at any stage of an AR;
• requiring generators to confirm and notify that their planning applications have not been refused — or that legal appeals are in motion — via a new "Initial Conditional Precedent" and general undertaking;
• giving the Low Carbon Contracts Company the right to terminate contracts if planning refusal is confirmed and unchallenged;
• allowing time relief for key contractual milestones if delays arise from planned-related issues beyond a generator’s control, alongside a duty on generators to progress their planning application with reasonable diligence; and
• introducing provisions for capacity reductions if planning restrictions make the original installed capacity estimate unviable.

3. Amending the budget publication process

To limit underspent budget as seen in AR6 for fixed-bottom offshore wind projects, the government confirmed in its 6 May response that to improve deployment efficiency, it intends to:

• lift restrictions preventing the Secretary of State from requesting anonymous auction information (such as bid price and capacity) before setting its budget;
• allow a Contract Budget Notice to be published later in the allocation round process, rather than 10 working days before the application window opens. Instead, a Capacity Ambition will be published ahead of AR7; and
• prohibit flexible bids for fixed-bottom projects.

Allowing the Secretary of State greater visibility of sealed bid information could inform budget-setting and signals a stronger emphasis on capacity procurement than cost-driven decisions.

Looking ahead

The government stressed that its consultations are without prejudice to a final government decision and should not be interpreted as an indication that any specific policy outcome will be adopted. However, when viewed alongside the planning reforms seen in the Planning and Infrastructure Bill, which is currently under Parliamentary consideration and aims to streamline the nationally significant infrastructure projects regime (For details of the Bill, please see here), the future landscape is shifting toward a more agile and coordinated approach to delivering clean energy infrastructure.

Authored by Brian Chiu.