UK government announces first 27 renewable energy projects to receive contracts for difference

In total, 27 projects were awarded contracts for difference (CfDs) worth over £315 million following the first allocation round, during which developers of projects using more established renewable energy generation technologies were invited to bid for the lowest guaranteed price per megawatt hour (MWh) supplied to the grid they would accept. According to the Department of Energy and Climate Change (DECC), the competitive process meant that the government was able to support an additional 550MW of generating capacity.

Renewable energy expert Ian McCarlie of Pinsent Masons, the law firm behind Out-Law.com, said that completion of the first CfD allocation round was a "significant milestone" for the UK energy industry.

"Offshore wind, as anticipated, has featured heavily, however there are significant awards for onshore wind with advanced conversion technologies (ACT) and solar also notably featuring," he said.

"A large number of developers across various technologies continue to focus heavily on procuring and financing projects under the Renewables Obligation; however, this announcement brings into stark focus that EMR has now truly arrived. Participants and stakeholders in the market will be keenly analysing the strike prices awarded as they now start to plan for the impending closure of the RO and the reality of developing, procuring and financing renewable energy projects in a new CfD environment," he said.

Successful projects included the two offshore wind farms, at Neart na Gaoithe in the Firth of Forth and East Anglia, which could deliver over 1.1GW of new generating capacity combined. Contracts were also awarded to 15 onshore wind projects, five solar projects, two combined heat and power (CHP) projects and three ACT energy from waste (EfW) plants. All technologies apart from EfW bid significantly below the maximum 'strike price' set by the government, according to DECC; with the price for solar in particular coming in at up to 58% lower than it otherwise would have been. Successful projects received 15-year contracts.

As a significant part of the UK government's electricity market reform (EMR) programme, through which it aims to incentivise up to £110 billion in energy investment over the next decade, CfDs will replace existing incentives for renewable energy generation such as the Renewables Obligation (RO) from April. The RO will then be phased out entirely by 2017.

CfDs will provide guaranteed payments to operators of approved renewable generation technology, while enabling the system operator to 'claw back' money when market prices are high. Payments will be calculated with reference to a technology-dependent 'strike price' and a market reference price, and places within the scheme will be allocated to those more established technologies that bid for the lowest strike price below the maximum.

Onshore wind, solar photovoltaic (PV), CHP, hydro, landfill gas and sewage gas were all included within the 'established' technology group during the first allocation round. Offshore wind and other 'less established' technologies were not expected to compete with more established technologies on price. Established technologies were allocated a £50m budget, with an additional £15m set aside for later projects. The budget for the next CfD allocation round will be confirmed later this year.

Energy secretary Ed Davey said that the approved projects would cut UK carbon dioxide emissions by four million tonnes each year.

"These projects could power 1.4 million homes, create thousands of green jobs and give a massive boost to home-grown energy while reducing our reliance on volatile foreign markets," he said. "The auction has driven down prices and secured the best possible deal for this new clean, green energy."