The Energy Transition | Record capacity awarded in T-1 Capacity Market auction

This week we look at record results from the T-1 Capacity Market auction, government plans to upskill local communities in order to reduce onshore wind project delays, and new analysis indicating possible record numbers for offshore wind farm projects within the next Contracts for Difference round. 

Record capacity awarded in T-1 Capacity Market auction

National Grid Electricity System Operator (ESO) has released preliminary results of the one-year ahead (T-1) Capacity Market auction for the 2024/2025 delivery year. In total, 7.6GW of capacity was awarded across 277 capacity market units. While this is marginally lower than ESO's target of 7.7GW, it is still the highest ever total for the Capacity Market, beating the previous record of 5.8GW secured in the T-1 auction for the 2023/2024 delivery year.

This year's auction cleared in the eighth round at £35.79/kW/year, a 40% decrease on the clearing price of £60kW/year for last year's equivalent auction. The majority of capacity was awarded to gas as a primary fuel type at 2.9GW (38% of the total capacity), closely followed by nuclear at a total of 2.7GW.

In terms of clean technologies, battery energy storage systems (BESS) were awarded approximately 655.16MW. This represents the highest capacity awarded to clean technologies in AR6, followed by pumped storage which received 185.38MW. In addition to this, solar assets were awarded 10.45MW, hydro power 98.92MW. Offshore and onshore wind were awarded 73.87MW and 33.36MW respectively.

Georgina Morris, head of Capacity Market Policy (Low Carbon Technologies) at the Department for Energy Security and Net Zero (DESNZ), commented on the BESS preliminary results at the Energy Storage Summit. She stated that that in respect of energy storage projects, the Capacity Market is increasingly becoming an "important part of the revenue stack".

In the same week, the government published responses to a further round of clarification questions for the second hydrogen allocation round (HAR2). As we have previously reported, HAR2 will allocate funds under the Hydrogen Production Business Model to support 875MW of low-carbon hydrogen production. Applications are currently open to projects which meet the Low Carbon Hydrogen Standard, the government's conditions for low-carbon hydrogen production.

Government set to upskill local communities to help reduce onshore wind delays

The government has announced plans to further educate local communities about benefits of onshore wind in England. The recent announcement is a response to DESNZ's consultation titled "Developing local partnerships for onshore wind in England", which took place from May to July 2023.

DESNZ acknowledges that early engagement with local communities has helped onshore wind developers provide accurate information and upskill communities around technical aspects of projects. In its response, DESNZ has pledged to provide communities with supporting information and case studies on the benefits of onshore wind farms.

As part of its plans, DESNZ aims to take ownership of the Community Benefits Protocol for England and publish it as official government guidance. The updated protocol will reflect the full range of benefits that communities could receive, and DESNZ believes this will provide the whole of the onshore wind industry with clear expectations on community benefits. DESNZ is considering a mechanism for developers to formally sign up and endorse an updated protocol to increase trust within communities. Additionally, DESNZ is considering the creation of a public Community Benefits Register to capture details of community benefits packages for onshore wind.

These measures are intended to ensure that communities have a voice in the decision-making process and can benefit from hosting onshore wind projects.

The response follows the government's update of the National Planning Policy Framework in September 2023, which allows for quicker approval of onshore wind projects in England that are supported by local citizens. Together, DESNZ intends that these measures will help it fulfil its commitment in the British Energy Security Strategy to deliver local partnerships for onshore wind.

Record number of offshore wind farms could be secured in next CfD round

Analysis by a renewable energy trade association argues that the government has the chance to secure a record number of new offshore wind farms and record amount of new capacity in this year's Contracts for Difference (CfD) auction.

RenewableUK’s latest EnergyPulse Insights Offshore Wind report reveals that 14 offshore wind projects are currently eligible to bid into Allocation Round 6 (AR6), which is the CfD round taking place in summer 2024. These projects represent nearly 10.3GW of new capacity. A further 4.7GW of new capacity could become eligible by the time AR6 applications open at the end of March, if the government grants planning consent to these projects. The UK currently has 14.7GW of fully operational offshore wind. This gives the government the potential to double the country’s offshore wind capacity in AR6 alone, according to the report.

We previously reported that the UK government had increased the CfD maximum strike price for offshore wind projects by 66% in advance of AR6, from £44/MWh to £73/MWh. Whilst the price for the AR6 round has been fixed the total budget has yet to be announced. The size of the budget is likely to have a significant impact on the number of bidders.

Chief executive of RenewableUK, Dan McGrail, said, “[a]s offshore wind farms are one of our cheapest sources of new power for billpayers, we’re urging Ministers to be ambitious when they set out the auction budget and parameters next month.”

This week's article was written with the assistance of Jack Duffy, Luke Webb and Johnny Hartrick, Trainee Solicitors.