The Department for Business, Energy and Industrial Strategy (BEIS) has confirmed that Allocation Round 4 is to open in December 2021 and has doubled-down on a commitment to UK content in future projects, including the threat of contract termination
In Allocation Round 4 (AR4), the UK’s next round of contract for difference auctions, BEIS aims to double the capacity of renewable energy compared to the last round (AR 3) and expand the number of technologies supported, with offshore wind, onshore wind, solar, tidal, and floating offshore wind projects all eligible to bid.
Ahead of AR 4, the government also published its response to a November 2020 consultation on changes to Supply Chain Plans and the CfD contract.
The response confirms decisions made on amendments to strengthen the Supply Chain Plan process for projects of 300 MW or more entering a CfD allocation round. These include the implementation of new legislative powers for the Secretary of State to assess and either pass or refuse a Supply Chain Implementation Statement.
The response states that the assessment of a developer’s delivery of its supply chain commitments will be brought forward to shortly after a project’s milestone delivery date. It states that the Secretary of State will have new powers to assess and either pass or refuse a Supply Chain Implementation Statement.
Most controversially, is further states that a new ‘Operational Condition Precedent’ will be introduced ‘with the potential consequence of CfD contract termination if a Supply Chain Implementation Statement certificate is not provided to the Low Carbon Contracts Company before the Longstop Date.”
The government response also confirms the government’s decision to not extend phasing to floating offshore wind, as well as a series of technical amendments to the CfD contract.
Commenting on the announcement by BEIS about the next CfD auction, RenewableUK deputy chief executive Melanie Onn said, “Supporting innovation and the growth of the UK’s offshore wind industry is vital to kickstart the green economic recovery.
“We are building up a strong UK supply chain with major manufacturers locating factories here and the industry is committed to supporting globally competitive companies. Developers and supply chain firms are making significant investments to drive the industry forward.
“The latest supply chain proposals set challenging new demands for project developers, so it is vital the guidance is clear on how we can demonstrate the contribution we’re making by creating thousands of jobs, developing skills and fostering innovation across the supply chain, as well as building vital new infrastructure.
“Project developers are already working with manufacturers to help them understand our projects’ needs and timelines, which will support investment in new facilities and the development of new skills in our workforce.
“Underpinning all this, we need large volumes of new capacity in the next CfD auction for new contracts to generate clean power to keep us on track for our 2030 target, quadrupling what we’ve already installed.”
BVG Associates associate director Dr Alun Roberts said, “The problem for government and industry stems from the fact that the government has a desired outcome – more local content – but the CfD process is the only lever the government has, and CfDs are awarded on price only.
“The government is trying to use supply chain plans as a lever but concludes that the process needs teeth if it is to have any effect. Its solution is to threaten the removal of the CfD if developers’ commitments aren’t met.
“ Industry can argue – with some justification – that this imposes a huge risk on projects. It is also likely to lower commitments, making the process counterproductive.
“If a supply chain plan needs only to score 50% to be accepted, it is likely that a pass can be achieved without committing to very much.
“The government has two options: include a local content premium in the pricing of CfD or continue to apply political pressure but without teeth.
“At the moment, it is doing neither one or the other. However, the industry has signed up to a 60% UK content target in the sector deal, so at some point the government will want evidence that we are on track to achieve it.”
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