UK renewables funding boosted in increase to AR6 budget

On 31 July 2024, the Department for Energy Security and Net Zero (DESNZ) announced that the budget for the latest auction round for Contracts for Difference (CfDs), Allocation Round 6 (AR6), has been revised to £1.555 billion. This is an overall increase of £530 million to the previous AR6 budget, making it a record budget, which is more than seven times higher than the AR5 budget last year (which was £205 million).

AR6 was launched by the previous government in March 2024 with an overall budget of £1.024 billion and the auction process has continued running throughout the summer. Now the budget has been set, the auction will take place in August with successful projects to be announced in September.

The revised budget comprises:

The Administrative Strike Prices for AR6 remain as follows:

Impact on offshore wind

The combination of an increased budget (which will allow more projects to be awarded CfDs in AR6) and the already increased offshore wind Administrative Strike Price (capped at £29/MWh higher than for AR5, in which no offshore wind projects bid, largely due to projects no longer being viable at such a low price – see more here) will result in more viable offshore wind projects being awarded CfDs in AR6.

It is estimated that over 10 GW of fixed offshore wind projects are eligible for AR6 and that the increased budget could result in at least an additional 1 GW being successful. Given the timeframes typically required to get an offshore wind project from CfD award to operations, a significant increase in projects being awarded CfDs in AR6 and AR7 (scheduled to run in 2025) will be essential to meet the government's target of 55GW of offshore wind by 2030. A greater volume of renewable projects being awarded CfDs will also help to bolster much-needed investment in the UK supply chain. 

Along with the partnership between Great British Energy and The Crown Estate announced last week (which aims to accelerate offshore wind deployment by granting 20-30 GW of new offshore wind seabed leases by 2030 and de-risking early stage offshore wind project development), the increased budget demonstrates the new government's commitment to accelerating the pace of deployment of offshore wind.

Future rounds

The new government also needs to respond to several of the previous government's consultations affecting future allocation rounds to provide developers with clarity as to the eligibility for, and terms of, future CfD support. The consultations include:

• Proposed amendments for AR7 to:
  • enable repowering onshore wind projects to apply for a CfD in some circumstances;
  • allow phased CfDs for floating offshore wind projects;
  • streamline the appeals process for annual auction rounds; and
  • introduce changes to metering to better enable CfD generators to co-locate with other assets.

• Considerations for allocation rounds after AR7:
  • the ways in which the CfD can support innovation in developing floating offshore wind foundation technology (including considering how floating offshore wind should be defined);
  • how the CfD could support the delivery of improved coordination of offshore transmission infrastructure (e.g. offshore hybrid assets and/or bootstrap infrastructure); and
  • whether CfD indexation should be updated to better reflect inflation risks (including whether to provide better protection during the construction period).
• Potential longer-term changes being considered as part of REMA, including:
  • moving away from a CfD payment based on output (e.g. a deemed or capacity-based CfD);
  • reference price reform; and
  • restricting the percentage of capacity the CfD could cover for any development.