Offshore Wind Worldwide Regulatory Framework in Selected Countries 5th Edition 2024 - Flipbook - Page 343
Offshore Wind Worldwide 2024
See section 2.3 below for further details of
the UK’s CfD scheme.
343
2.3 Incentives for investments
when the market price becomes lower than
the agreed strike price, and the generator
pays the counterparty when the market
price goes above the agreed strike price.
(a) Contracts for Difference
As noted above, the CfD scheme is the UK
government’s main mechanism for supporting low-carbon electricity generation.
CfDs are awarded to prospective developers
through CfD auction/allocation rounds.
(b) Investment Contracts
Investment Contracts are an early form
of bespoke and bilaterally negotiated CfD
support awarded by the UK Government
to 5 offshore wind farms and three other
renewable electricity projects in 2014.
Offshore wind and other renewable generators located in the UK that meet the
eligibility requirements can apply for a CfD
by submitting what is a form of ‘sealed bid’.
There have been six CfD auctions to date
(with the results of the sixth round published in September 2024), which have seen a
range of different renewable technologies
competing directly against each other for a
contract.
(c) Renewable Obligation Certificates
(ROCs)
The Renewables Obligation (RO) was the
main support mechanism for large-scale renewable electricity projects including
offshore wind in the UK prior to the CfD and
Investment Contracts.
Successful developers of renewable projects
enter into a private law contract with the
Low Carbon Contracts Company (LCCC), a
government-owned company. Developers
are paid a flat (indexed) rate for the electricity they produce over a 15-year period; the
difference between the ‘strike price’ (a price
for electricity reflecting the cost of investing in a particular low carbon technology)
and the ‘reference price’ (a measure of the
average market price for electricity in the GB
market).
CfDs provide price stability by converting
the risk of the variable price of the wind project’s energy output to a fixed price (‘strike
price’). The generator pays the counterparty
The RO came into effect in 2002 in England and Wales, and Scotland, followed
by Northern Ireland in 2005, but closed to
new generating capacity on 31 March 2017,
subject to certain specified grace periods.
It places an obligation on UK electricity suppliers to source an increasing proportion of
the electricity they supply from renewable
sources.
Under the RO scheme, operators of accredited renewable generating stations are issued
with Renewable Obligation Certificates
(ROCs) for the eligible renewable electricity
they generate.
Accredited offshore wind generating stations receive 20 years of ROC support (known
as ROC banding) as follows:
