The Government’s consultation on CfD for AR7 will shake up the offshore wind sector – here’s how

The publication last week of the Government’s response to the consultation on further reforms to the contracts for difference (CfD) scheme for Allocation Round 7 (AR7) should be broadly welcomed by the UK’s offshore wind sector.

The Government’s much anticipated consultation response goes some way to providing established market players and entrants to the offshore wind space alike the clarity they need to invest, innovate and grow in the UK market. 

Though the consultation has delayed the timeline for the Allocation Round for this year – plans are underway for AR7 to open in August 2025 – time has been spent building in reforms to the process in the hope of delivering a record-breaking AR.

Most notably, the Government has relaxed eligibility for Fixed-Bottom Offshore Wind projects, which can now apply for CfD before full planning consent is required.  This has been accompanied by longer CfD Contract Terms that have been extended from 15 to 20 years for offshore and onshore wind, solar and FLOW (Floating Offshore Wind). 

This should result in increased investor confidence and greater competition in the auction. Hopes are high that more in the pot with a potentially improved financial return leads to the uptake in projects that this Allocation Round urgently needs. 

Moreover, a temporary restriction on surrendered capacity has been imposed meaning that capacity given up in previous allocation rounds cannot be rebid into AR7.  This should be welcomed by the sector as it ensures a fairer allocation of budgets for new projects, whilst older projects do not dominate through wanting another bite of the cherry.

In fact, in its original consultation submission to Government earlier this year, Wood Thilsted highlighted the potential benefits of a relaxation of eligibility requirements to enable projects to apply for a CfD while awaiting planning consent as it has the potential to:

1. Pull forward development phases supporting the expedition of project delivery in pursuit of 2030 targets.
2. Encourage further time and investment in early phase work, which is critical in stimulating a project’s optimisation of value creation, seeking efficiencies, reducing costs, and protecting the environment, rather than value maintenance post-FID.

Therefore, it is good to see that the Department of Energy Security and Net Zero (DESNZ) has listened to the sector and acted on its recommendations.

Ostensibly, the new framework presented last week should result in increased competition and a more rounded project pipeline though some non-delivery risks might be elevated.  Planning consent (DCO) remains a separate requirement.   

Yet, progress in these areas is balanced by the omission of deepwater wind projects beyond FLOW.  Given the fact that FLOW is several years away from maturity, we need to open the envelope to encourage extension and improvements in traditional fixed bottom technologies – potentially a more cost effective, sustainable and faster route to access deeper waters in the UK than FLOW.

Overall, the consultation response will breathe new life into existing projects and open new opportunities for what should be a record-breaking AR7.  Far from a summer break, the UK’s offshore wind industry is gearing up for a busy summer as AR7 shapes the future contours of one of the key pillars of the country’s energy sector.