UK BEIS extends comment period on proposal to amend CfD scheme

By Erin Voegele | May 14, 2020

The U.K. Department for Business, Energy and Industrial Strategy has extended the public consultation period on proposed changes to its Contracts for Difference (CfD) scheme. Comments are now due on May 29.

The BEIS opened a pubic consultation on proposed changes to the CfD scheme on March 2. The scheme is the government’s main mechanism for supporting low-carbon electricity generation. CfDs aim to incentivize investment in renewable energy by providing project developers with protection from volatile wholesale energy prices. Developers of projects selected for CfDs enter into contracts with Low Carbon Contracts Co., a government-owned company, and are paid a flat rate for electricity they produce over a 15-year period. To date, the government has held three CfD auctions. The government plans to finalize changes to the CfD program before launching the fourth auction in 2021.

In the proposed amendments, the BEIS proposes to exclude new coal-to-biomass conversions from futures rounds of the CfD scheme. Several other forms of bioenergy projects, including dedicated biomass with combined-heat-and-power (CHP), landfill gas, and sewage gas, and anaerobic digestion would continue to be eligible for the CfD scheme.

According to the BEIS, the U.K. government has incentivized the deployment of approximately 3 gigawatts (GW) of biomass conversion capacity through both the Renewables Obligation and CfD schemes.  The proposal notes that the government has been clear that it was supporting biomass conversions as a transitional technology, not a long-term solution. “All support for biomass conversions under the CfD (and Renewables Obligation) ends in 2027,” the BEIS wrote in the consultation. “This means that while support under CfD contracts normally lasts for 15 years from the generation start date, those for coal-to-biomass conversion projects cease to provide support in 2027. Therefore, any contracts issued from the next allocation round apply for projects with deliver years beginning in the mid-2020s and would therefore only receive limited support rather than the usual 15 years.”

The consultation proposes to exclude new coal-to-biomass conversions from future CfD auctions. “Because support under any contracts issued following from Allocation Round 4 will end in 2027 and therefore only last approximately two years (assuming delivery years in mid-2020s) the impact of this proposal is thought to be low, though we welcome views from stakeholders,” the BEIS said.

The consultation stresses that existing CfDs supporting coal-to-biomass conversions will remain unaffected by the proposal. The proposal will also not affect biomass conversion projects that are not otherwise subsidized and seek to participate in the Capacity Market, the government’s mechanism for ensuring security of supply.

The consultation also seeks comments on the pot structure of the CfD scheme. According to the BEIS, CfDs are allocated in a competitive auction process under which different technologies compete against each other within groups or “pots.” Currently, Pot 1 includes established technologies, including onshore wind with capacity greater than 5 megawatts (MW); solar photovoltaic projects with greater than 5 MW of capacity, energy from waste with CHP, hydro projects with between 5 MW and 50 MW of capacity; coal-to-biomass conversions; landfill gas; and sewage gas. Pot 2 currently includes less established technologies, including offshore wind; remote island wind projects with more than 5 MW of capacity; wave; tidal stream; advanced conversion technologies (ACT); anaerobic digestion projects with more than 5 MW of capacity, dedicated biomass with CEP and geothermal.

For the fourth auction, the BEIS is proposing that Pot 1 will include onshore wind projects with 5 MW or greater capacity; solar photovoltaic projects with more than 5 MW of capacity; energy from waste with CHP; hydro projects with between 5 MW and 50 MW of capacity; landfill gas; and sewage gas. Pot 2 would include ACT, anaerobic digestion projects with more than 5 MW of capacity; dedicated biomass with CHP; floating offshore wind; geothermal; offshore wind; remote island wind projects with more than 5 MW of capacity; tidal stream; and wave. An alternative option would move offshore wind to a newly established Pot 3.

Additional information is available on the BEIS website