Source · Select Committees · Public Accounts Committee
Recommendation 10
10
Accepted
Contracts for Difference mechanism effectively reduced offshore wind costs and spurred investment.
Conclusion
The Department told us that its role is to enable competition to drive innovation and cost reduction, and that the best example of this is how contracts for difference have sustained investment and innovation from the private sector in offshore wind. It told us that costs fell far faster and more steeply than anyone was expecting. As an illustration, an assessment by the previous Department for Energy and Climate Change in 2012 estimated a cost of £125MW/h in 2025. The Department’s current estimate for that period is £50MW/h.30 It considers that the regularity of annual contracts for difference auctions will provide the industry with the confidence it needs to continue to invest and develop new project proposals.31
Government Response Summary
The government agrees and aims to provide clarity to the private sector to encourage investment by publishing the 2023 Green Finance Strategy and other plans. These initiatives include £20 billion for CCUS, annual Contracts for Difference rounds, and sector-specific investment roadmaps to boost investor confidence.
Government Response
Accepted
HM Government
Accepted
3.1 The government agrees with the Committee’s recommendation. Target implementation date: December 2023 3.2 The department recognises the importance of giving clarity to the private sector to encourage investment. Earlier this year the government published Mobilising Green Investment: the 2023 Green Finance Strategy, alongside the Powering Up Britain: the Net Zero Growth Plan and Powering up Britain: the Energy Security Plan. 3.3 The Green Finance Strategy provides clarity on pathways for investment across net zero, and communicates to businesses, investors and the finance sector the UK’s plan to grow investment. These publications set out plans to grow green investment across all parts of the UK, which include providing up to £20 billion funding for early deployment of Carbon Capture, Usage and Storage, and launching the fifth Contracts for Difference allocation round, the first round to run on an annual basis. These provide investor clarity on the government’s overall approach to enhance our country’s energy security, seize the economic opportunities of the transition, and deliver on our net zero commitments. 3.4 In addition, the department is also communicating more detailed investment needs and opportunities on a sector-by-sector basis. In March 2023 it published the Offshore Wind Net Zero Investment Roadmap, the Heat Pump Net Zero Investment Roadmap, and the Hydrogen Net Zero Investment Roadmap, as well as an updated version of the Carbon Capture Usage and Storage Investment Roadmap. The department considers that this is an appropriate way to provide detail relevant to particular groups of investors and plans to publish further roadmaps for other sectors that need private sector investment later in 2023.