Source · Select Committees · Welsh Affairs Committee
Recommendation 9
9
Accepted in Part
The UK Government should reform future Contracts for Difference auctions for floating offshore wind to...
Recommendation
The UK Government should reform future Contracts for Difference auctions for floating offshore wind to include enforceable local content requirements as a condition of the contract. These requirements should be designed to align with those in The Crown Estate’s upcoming leasing rounds. It should also re-examine the parameters for Allocation Round 5 and take action to ensure the strike price fully reflects increased costs to developers arising from global economic pressures. (Paragraph 43) Preparing ports for floating offshore wind
Government Response Summary
The government is working with The Crown Estate to co-ordinate their future approach to supply chains, respecting that local content requirements are illegal under WTO trade rules. Government makes decisions about CfD auction design considering a wide range of evidence to carefully balance the need to maximise renewable deployment and to deliver value for money outcomes.
Government Response
Accepted in Part
HM Government
Accepted in Part
The Government is working with The Crown Estate to co-ordinate their future approach to supply chains, whether in CfD Supply Chain Plan policy, or the potential introduction of CfD non-price factors which are the subject of a recently published Call for Evidence. Future government policy will be designed to maximise the development of a healthy, sustainable and secure Floating Offshore Wind supply chain, respecting that local content requirements are illegal under WTO trade rules. Government makes decisions about CfD auction design considering a wide range of evidence, such as our best knowledge about the anticipated firm project pipeline at the point the Budget decision is made, to carefully balance the need to maximise renewable deployment and to deliver value for money outcomes. The Secretary of State has the opportunity to increase the Budget after the application window has closed and a formal valuation of eligible participants has been submitted by National Grid. Administrative Strike Prices (ASPs) for each technology within the CfD scheme are based on the Department for Energy Security and Net Zero’s latest view of potential project costs and future revenues, which are consistent with cost assumptions in the upcoming 2023 Electricity Generation Costs report. They are set to encourage participation in the allocation round and use an approach which ensures value for money, whilst being consistent with government’s policy and deployment ambitions. The CfD scheme also provides generators with protection from inflation through indexing the strike price to the Consumer Price Index (CPI). This compares favourably to other schemes. No system fully accounts for the impact on every individual project, but this approach offers broad protection to generators throughout the contract life; generators’ strike prices will benefit from future adjustments for CPI over the duration of the contract. The ASPs for Allocation Round 5 (AR5), for the majority of successful technologies from Allocation Round 4 (AR4), remain at least 30% above their effective AR4 clearing prices, after accounting for the Ofgem decision to remove Balancing Services Use of System (BSUoS) charges from generators.