In a new consultation, the UK government wants to hold an auction next year for "established technologies" including onshore wind and solar alongside the already planned round for "less established technologies" like offshore wind including floating projects.
The proposal follows legal challenges and the government's climate change advisors warning the ban hindered its ambitions for net-zero greenhouse gas emissions by 2050.
In the consultation document, the government said it was aware some onshore wind projects were able to operate on a merchant basis — whereby operators receive the market price for electricity.
"However, there is a risk that if we were to rely on merchant deployment of these technologies alone at this point in time, we may not see the rate and scale of new projects needed in the near-term to support decarbonisation of the power sector and meet the net-zero commitment at low cost," according to the government in the consultation document.
The consultation closes on 22 May 2020.
The inclusion of onshore wind in a new auction round will cheer many in the industry. However, it remains unclear how often and how many auctions will be held, and how much budget will be available.
An unofficial tip height of 125 metres — preventing most developers from using the latest, most cost-effective turbines, and so hindering projects’ ability to compete in the tenders — also appears to remain in place.
While this tip height is not enforced by the government, the administration could direct permitting authorities to relax the restriction.
Onshore wind was eligible to participate in the UK’s first tender in 2015, but was then barred from the scheme’s second round in 2017, and has since been unable to compete in the auctions.
The government also ended the Renewable Obligation support scheme, which preceded the CfDs, in 2016 — a year earlier than originally planned.
Its reported reversal of the ban on CfD access follows legal challenges against the technology’s inability to compete in the tenders, and the UK setting a target of net-zero greenhouse gas emissions by 2050.
Onshore wind’s exclusion from the CfD scheme largely prevented operators from securing a stable revenue stream and had brought development in the UK to a halt.
Projects with a combined capacity of just 485MW were fully commissioned last year, according to Windpower Intelligence, down from a record 2.7GW in 2017, and 918MW in 2018.
Unable to secure CfD agreements, onshore wind developers had been forced to seek merchant contracts, with few successful in securing agreements to date.
Industry group RenewableUK welcomed onshore wind being reinstated into the CfD scheme but added that more details were needed on auction volume and timing.
“A new auction will allow the pipeline of shovel-ready onshore wind projects – those that have already gone through the planning system and secured consent – to compete for contracts to provide new renewable generation capacity," the lobby group said.
“It is vital that the UK secures new power sources to meet net-zero and avoid an energy gap as coal power ends in 2024," it added.
In future auction rounds, several thinktanks and industry groups believe onshore wind developers could secure power contracts that, while providing revenue certainty and stability, are “effectively subsidy-free”.
RenewableUK said onshore wind developers could secure contracts at prices within the range of those achieved by offshore wind developers in the last CfD round, a spokesman told Windpower Monthly.
Offshore wind farms secured contracts to generate power for £39.65-41.61/MWh in 2012 prices, or €52.48-55.08/MWh in 2019 prices, in the September 2019 round.
As these prices are projected to be below wholesale prices when the projects are due to be commissioned, developers would return surplus payments to the government.
“The contracts will provide the certainty and stability needed for onshore wind developers to go ahead with projects on what is effectively a subsidy-free basis," the RenewableUK spokesman said.
A 2018 study by consultancy BVG Associates suggested that onshore wind prices could fall from £49.40/MWh in 2019 to £45/MWh (both in 2017 prices) by 2025 — below projected wholesale electricity prices.
Scottish Renewables chief executive Claire Mack noted: “Access to the contracts for difference mechanism does not mean subsidy. These most competitive projects will be delivered at prices far below the wholesale cost of power.”
Meanwhile, the government’s climate advisory panel, the Committee for Climate Change, had previously warned that barring onshore wind and solar PV from auctions “limits the potential speed of decarbonisation and adds to costs” to carbon neutrality by mid-century.
BEIS will also consider how to integrate floating offshore wind into the CfD scheme.
It would be included in ‘pot 2’ for less-established technologies, but it is not yet clear whether it would compete directly against fixed-bottom foundation offshore wind - which has dominated previous tenders, securing the most capacity while achieving large cost reductions.
Fixed-bottom offshore wind could remain in ‘pot 2’ or could have its own tender round, in a separate ‘pot 3’ - meaning floating offshore wind would compete against ‘less-established’ technologies such as geothermal, remote island wind, tidal stream and wave energy - according to the consultation document.
BEIS stated: “Offshore wind (including floating) is potentially the most scalable renewable technology and could play a huge role in delivering net zero at low cost by 2050.”
It added that “floating offshore wind will need to deliver value for money, demonstrated through competitive auctions”, and that providing fixed-bottom projects with its own pot, would allow “more potential for floating offshore wind projects to successfully compete in the next CfD allocation round”.