Revised Budget for CfD AR6

The Government have published a Budget Revision Notice for the sixth Contracts for Difference (CfD) Allocation Round. This Notice was published on 30 July 2024 and is a revision of the Budget Notice given by the preceding Secretary of State on 6 March 2024.

The final overall budget for Allocation Round 6 (AR6) is now £1.555 billion, which is an overall increase of £530 million. Following this revision, the AR6 budget is 7 times higher than that of its predecessor, Allocation Round 5 (AR5).

Following the announcement, the REA issued a welcoming statement and Trevor Hutchings, REA Chief Executive, spoke with new Energy Minister, Michael Shanks.

Increases per Pot Technology

Pot 1 (Established technologies): uplift of £65 million, bringing the total budget to £185 million.

Pot 2 (Emerging technologies): uplift of £165 million, bringing the total budget to £270 million.

Pot 3 (Offshore wind): uplift of £300 million, bringing the total budget to £1.1 billion.

Pot Technologies

Pot 1 (Established technologies) confirmed as: Energy from Waste with CHP, Hydro (>5MW and <50MW), Landfill Gas, Onshore Wind (>5MW), Remote Island Wind (>5MW), Sewage Gas, and Solar Photovoltaic (PV) (>5MW).

Pot 2 (Less established technologies) confirmed as:  Advanced Conversion Technologies (ACT), Anaerobic Digestion (AD) (>5MW), Dedicated Biomass with CHP, Floating Offshore Wind, Geothermal, Tidal Stream, Wave.

Pot 3 Offshore wind

Delivery and Valuation Years

Pot 1 – 2026/7 (Delivery), 2027/8 (Delivery), 2028/9 (Valuation), 2029/30 (Valuation)

Pot 2 and 3 – 2027/8 (Delivery), 2028/9 (Delivery), 2029/30 (Valuation), 2030/31 (Valuation)

Maxima and Minima

The Government have maintained some previously announced Maxima and Minima for the round. These are used to either ringfence budget for technologies (a Minima) or place a cap on spending on one specific technology (a Maxima).

All the below will be applied to AR6 and will be done on a monetary budget (£ million) basis and operate as a ‘hard’ constraint.

Pot 1

Three separate Maxima, each of £185 million, will be applied to Solar PV, Onshore Wind, and Remote Island Wind in Pot 1. Note that while a Maxima, each is set at 100% of the pot budget, and as such is not expected to restrict deployment. DESNZ have previously indicated that this is to better enable separate technology-specific strike prices to be set through the auction, rather than as an attempt to reduce deployment.

Pot 2

A Minima of £15 million will be applied in respect of Tidal Stream in Pot 2. This means that £15 million is directly ringfenced for the technology and its funding could go above this level.

More disappointingly, Government is maintaining the Maxima of £8 million for Geothermal in Pot 2. The REA have previously highlighted our concern regarding this. The department have stated that this is because the Administrative Strike Price for Geothermal means it is now the cheapest technology in the Pot and the Maxima will enable it to set its specific strike price. The REA also spoke directly with new Energy Minister, Michael Shanks, who indicated that in the limited time they have been in power, they were only able to look at an increase in budget for this round, but they would consider re-examining the Minima and Maxima in AR 7.

Pot 3

Two separate Maxima, each of £1.1 billion will be applied to Offshore Wind Permitted Reduction projects and new Offshore Wind projects in Pot 3. The Maxima will be applied on a monetary budget (£ million) basis, to operate as ‘hard’ constraints.

The Administrative strike prices for AR 6 remain as previously stated, which can be read at the end of our previous members briefing here.