CPPAs and CfDs: friends, competition or influencers?

What is a CfD?

The CfD is a subsidy style scheme. The Government introduced it as part of its Clean Power 2030 goals in order to encourage the build-out of renewable energy generation assets.

They work as follows:

1. The Government agrees to buy power from developers that build solar, wind, tidal (etc.) assets.
2. The contract’s a long-term one, guaranteeing the developer revenue for its generation for 15+ years.
3. This revenue certainty provides the confidence the developer needs to invest in the generation assets – and the reassurance a lender needs to loan them the capital.
4. The resulting increase in UK renewables capacity improves the ‘greenness’ of its energy mix and drives progress towards governmental 2030 net zero targets.

Why generators currently prefer CfDs

CfDs act as a huge incentive to developers to build renewable generation assets. The Government acts as their single offtake customer – one that’s completely reliable and financially secure.

CfD contracts used to be for 15 years. They’ve now extended to 20 years – providing even more confidence to generators and their lenders.

To keep pace with competitive CfD prices, CPPA prices have increased accordingly.

The impact on consumers

Large-scale energy consumers have, to date, had less choice when it comes to securing long-term, fixed-price energy contracts.

With generators leaning towards the high prices and better reliability of CfDs for new-build assets, consumers’ access has generally been limited to power from existing renewable assets.

Why this might all be about to change

There is just one more CfD ‘allocation round’ – invitations to bid with renewable asset development proposals – for developers to build and commission assets before 2030. That’s likely to mean a sharpened focus on securing government contracts for developers in the short-term.

However, once this final round – called AR8 – has passed, the Government’s unlikely to offer the same price incentives for asset build-out.

This shift is likely to affect the link between CfDs and CPPAs.

What could this mean for energy buyers?

When AR8 has established its successful bidders, CPPAs may be one of few options for generators seeking long-term revenue certainty from new renewable assets.

This could lead to more choice for consumers – particularly if they’re looking to support the build-out of new renewables, enabling them to claim ‘additionality’ as an added bonus for sustainability credentials.

It’s difficult to be sure about the nature – or the direction – of change, though.

Results of the Government’s recent call for evidence which aim to bolster CPPA adoption may provide further clarity.

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