The UK’s Chancellor of the Exchequer yesterday delivered his Spring Budget. Published alongside the Budget, was the confirmation of Allocation Round 6 (AR6) budgets and parameters.

At over £1bn, the Allocation Round 6 (AR6) budget is the largest ever announced to support renewable electricity Contracts for Difference (CfD). This increased budget reflects a recognition by the Government that offshore wind developers face particularly difficult economic and market conditions.

CfD Allocation Round 5 (AR5) failed to deliver offshore wind projects, which means the next three rounds (AR6, AR7 and AR8) must deliver at least 8GW each of new capacity to get back on track for 50GW by 2030 and 2035 power sector decarbonisation.

The amount of capacity that AR6 can deliver depends on the Strike Prices that the upcoming auction clears at, and the mix of technologies that are bought forward. The re-introduced ‘Pot 3’ for offshore wind of £800 million could buy between 3GW and 5GW if strike prices clear in the range of £55/MWh-£70/MWh (2012 money).

Tom Glover RWE UK Country Chair commented on the announced Allocation Round 6 (AR6) budgets and parameters:

“We welcome clarity from the government today on the next Contracts for Difference auction round.  We have long called for an increase in the overall budget, and the headline figures announced today, which represent the largest budget to date, are a positive step in the right direction.

However, we are concerned that up to half of the eligible new offshore wind projects may struggle to secure viable contracts with these parameters which would lead to a large backlog of projects in future CfD rounds and frustrate the deployment of clean offshore technology and the supply chain opportunities that come with it.

Despite our calls for more realistic calculations to be used, the reference prices used by the government are not market reflective, meaning each MW procured is utilising more budget than it would otherwise – in turn meaning fewer projects will be successful in the auction than the budget should allow.

Given the failure to procure any offshore capacity in last year’s auction, the UK is now playing catch up to reach the 2030 target - an average annual CfD procurement of 8GW is needed to get close to the 50GW ambition. We do not believe this target is likely to be met with these auction parameters.  As reference prices cannot now be changed, we strongly urge the government to carefully reconsider and increase the AR6 budgets announced to ensure that the Government's own ambitions have any chance of being met and this is not, yet again, another missed opportunity”.