Tag: Energy Security and Net Zero Department

The government has increased the maximum price for offshore wind projects in its flagship renewables scheme to further cement the UK as a world leader in clean energy.

Following an extensive review of the latest evidence, including the impact of global events on supply chains, the government has raised the maximum price offshore wind and other renewables projects can receive in the next Contracts for Difference (CfD) auction to ensure it is performing effectively.

The CfD scheme ensures renewable energy projects receive a guaranteed price from the government for the electricity they generate, encouraging continued investment in the UK – which is already home to the world’s 5 largest operational offshore wind farm projects and has increased electricity generation from renewables from 6% in the first quarter of 2010 to 48% in the first quarter of this year.

The maximum strike price has been increased by 66% for offshore wind projects, from £44/MWh to £73/MWh, and by 52% for floating offshore wind projects, from £116/MWh to £176/MWh ahead of Allocation Round 6 (AR6) next year.

This will help ensure projects are sustainably priced and economically viable to compete in AR6, building on the success of previous CfD auctions. These have so far awarded contracts totalling around 30GW of new renewable capacity across all technologies since 2014.

In AR6, offshore wind will also be given a separate funding pot in recognition of the high number of projects ready to participate. This will ensure healthy competition among a strong pipeline of projects, helping the UK deliver on its ambition of up to 50GW of offshore wind by 2030, including up to 5GW of floating offshore wind.

First established nearly a decade ago, the CfD has helped reduce the cost of renewables. It aims to deliver good value to electricity consumers and drive down costs. The government’s ambitions will create tens of thousands of new jobs by 2030, while also delivering the Prime Minister’s priority of growing the economy.

See Contracts for Difference (CfD): Allocation Round 6.

The government is also today (Thursday 16 November 2023) publishing developed proposals to review applications from the 2025 auction not just on their ability to deliver low cost renewable energy, but also on how much a project strengthens the environmental and economic sustainability of the industry. As part of this, a project’s social impact will also be considered – including how supply chains affect jobs and communities.

Energy Security Secretary Claire Coutinho said:

The UK is home to the world’s 5 largest offshore wind farms projects.

Today we have started the process of our latest Contracts for Difference auction for renewables, opening in March next year. We recognise that there have been global challenges in this sector and our new annual auction allows us to reflect this.

This is a vital part of our plan to have enough homegrown clean energy, bringing bills down for families and strengthening our energy independence.

Minister of State for Energy Security and Net Zero Graham Stuart said:

Last year’s Contracts for Difference scheme saw more than 90 clean, homegrown energy projects and today we have shown our ongoing commitment to retaining our global leadership in renewable energy.

This critical update to the scheme’s design provides further clarity and confidence to the offshore wind sector and ensures the scheme remains competitive for renewable developers investing in new low carbon technologies.

I look forward to securing another year of successful contracts in 2024, creating skilled jobs, reducing emissions and delivering maximum amounts of reliable clean energy for the British public.

Exchequer Secretary to the Treasury Gareth Davies MP said:

This scheme has played an indispensable role in driving forward renewable energy projects.

Supporting industry to make investments in renewable energy is essential to achieving our net zero goals, vital to attracting investment to our coastal communities, supporting jobs, and levelling up the country. I am proud to see Britain remain at the helm of green energy innovation as we move ahead.

The government is also increasing maximum bid prices for other technologies, offering certainty for developers, and keeping the UK at the cutting edge of all renewables. These include:

• geothermal by 32% – from £119/MWh to £157/MWh
• solar by 30% – from £47/MWh to £61/MWh
• tidal by 29% – from £202/MWh to £261/MWh3

Contracts for Difference are currently awarded based on the outcome of a competitive auction.

The consultation published today invites views on how Sustainable Industry Rewards, formerly non-price factors, could be incorporated into the 2025 auction process. This would be for offshore wind and floating offshore wind companies and would mean additional payments if they reduce the carbon emissions in their supply chains, or if they improve their social benefits, ensuring AR7 is the cleanest and most impactful auction yet.

See the consultation: Introducing a Contracts for Difference (CfD) Sustainable Industry Reward.

This could be done by investing in high-skilled jobs, using more environmentally friendly factories to assemble components, such as wind turbines, investing in new manufacturing facilities or skills in deprived areas, or finding new, innovative ways to reduce their carbon emissions, for example.

Building a more secure energy future will increase developer confidence in the sector every year. It will also enhance the UK’s reputation as one of the most attractive places to invest in renewables.

The introduction of annual auctions last year means project developers now have more frequent opportunities to participate. This also allows the government to respond more quickly to ensure the scheme continues to support the sector, maintain investment and continue its success.

The government is also taking significant steps to ensure homes and businesses across the country can access the electricity produced from these new renewable projects by accelerating grid infrastructure and connections. A Connections Action Plan will be published later this year to reform the connection process and reduce connection timescales.

RenewableUK’s Chief Executive Dan McGrail said:

Ensuring that the UK continues to unlock investment in renewables is critical to improve Britain’s energy security, drive economic growth, support thousands of new green jobs and enable us to continue to create a lowest cost electricity system for billpayers. With intense international competition for investment in renewables, we welcome the strong commitment to the sector shown by government today, which demonstrates that the UK is intent on remaining a global leader in offshore wind, as well as innovative technologies like floating wind and tidal stream.

There is the potential for the government to attract a record level of private investment in offshore wind projects next year, with at least 10 projects likely to be eligible, able to power 8.5 million homes each year and reduce the UK’s need for gas by 39%. The framework they’ve set out today is a significant step forward in securing this. Although renewables haven’t been immune from the recent rises in financing and supply chain costs which all major infrastructure projects have faced, they remain the lowest cost means of generating new electricity. Even at these new prices, there is still no cheaper way to meet the UK’s rising electricity demand and increase our energy security.

Emma Pinchbeck, Energy UK’s Chief Executive, said:

Offshore wind is the flagship technology for the UK in terms of meeting our net zero targets. It’s also a critical one to ensuring our energy security through generating more clean domestic power – at the same time as boosting our economy and creating jobs. So we very much welcome the government responding to the increased global competition and the economic challenges facing developers by showing more ambition and giving greater confidence to investors, which will help build a domestic green powerhouse that benefits our own economy and people.

Wider stakeholder commentary

Tom Glover, RWE UK Country Chair, said:

RWE welcomes the government’s decision on the administrative strike prices for renewables technologies bidding into Allocation Round 6, and its recognition of broader international global supply chain and inflationary cost pressures within the clean energy sector. We also welcome the decision to revert to a separate allocation pot for offshore wind for Allocation Round 6, which should help to secure future capacity towards the UK’s 50GW by 2030 target.

The timely and efficient deployment of renewables remains the lowest cost and best way of achieving the UK’s domestic energy security, as well as net zero. Today’s announcement represents a positive step towards maximising the UK’s clean energy potential, for ensuring sustained lowest prices for consumers and creating good quality jobs.

Keith Anderson, Chief Executive of ScottishPower, said:

Bringing more green energy onto the system is the single most important thing we can do to cut customers’ bills and strengthen our energy security. This is a welcome signal that the government is listening and is committed to getting the UK’s pipeline of offshore wind projects moving again.

The real test of that ambition will come when the overall budget for the next auction round is set next year. But, no doubt about it, this is a step in the right direction.

Chris Hewett, Chief Executive of Solar Energy UK, said:

The Contracts for Difference system has been a major factor in the growth of the UK’s solar power sector, by providing investors with secure and reliable incomes. Solar remains the cheapest source of power in the UK, according to the government’s own figures, although lately installation costs have been affected by factors outside the control of the industry, notably the war in Ukraine. So it is gratifying that that the maximum bid price has been raised by a significant amount, which should bolster growth further towards reaching the capacity target of 70GW by 2035.

Duncan Clark, Head of UK Region at Ørsted, said:

We welcome this important and positive step towards getting the next auction round right, which is essential for both UK energy security and the wider supply chain. This is a clear indication from government that offshore wind can and will be the backbone of our future energy mix – providing low-cost, low-carbon electricity, creating jobs, supporting communities and attracting investment into the UK.

Alistair Phillips-Davies, Chief Executive, SSE plc, said:

Securing enough projects through the next 2 auction rounds will be critical if the UK is to deliver on its stretching renewables targets and we therefore welcome today’s announcement which is an important step towards this goal. We now look forward to continuing to work constructively with the UK government on further details related to next year’s auction, as well as on wider issues such as consenting, in order to ensure as many projects as possible are able to bid for contracts to drive the right outcomes for consumers, energy security and the climate.

Halfdan Brustad, VP UK Renewables at Equinor, said:

When it comes to offshore wind, the UK is Equinor’s most important market. Equinor, like the UK, is committed to becoming net zero by 2050. DESNZ’s published AR6 parameters reflect the changing economic conditions for domestic renewable energy production including both bottom-fixed and floating offshore wind, which is warmly welcomed by Equinor. In a globally competitive environment, ensuring the right CfD parameters enables the UK to remain one of the most attractive markets to develop offshore wind.

Matthieu Hue CEO at EDF Renewables UK, said:

Today’s announcement on the Administrative Strike Price levels is very welcome news, and is a step in the right direction to putting the UK back at the forefront of renewable deployment.

The Contract for Difference is fundamentally a good mechanism, and a sustainable administrative strike price will drive investor confidence, economic growth and lower electricity bills.

It is encouraging that the concerns raised by ourselves and the rest of the industry in recent months have been listened to and we look forward to seeing further detail on the budget parameters over the coming year to match the ambition of today’s announcement.

The framework set out in relation to floating wind places us in a strong position to start to realise the many benefits that this emerging technology offers. The most advanced projects, such as our Blyth 2 Demonstrator, will enable the UK to secure a head start in the global race to develop floating wind.

Claire Mack, Chief Executive of Scottish Renewables, said:

Industry has repeatedly warned of the cost pressures facing our industry so we’re pleased the UK government has responded by delivering strike prices which should go a long way to restoring investor confidence in the Contracts for Difference scheme as a viable route to market for offshore wind.

As well as the social, environmental and economic benefits that renewable energy projects can deliver, bringing forward more of these developments will not only deliver affordable electricity and savings to bill-payers but will improve energy security and reduce consumer exposure to high, volatile gas prices.

It is therefore now essential that the UK government provides a budget for Allocation Round 6 which aligns with Scotland’s renewable energy ambitions and maximises the number of projects which can be successful in winning contracts to deliver clean power for consumers.

The UK government has introduced the Offshore Petroleum Licensing Bill to Parliament today (Wednesday 8 November) to boost the UK economy, energy security and transition to net zero.

The legislation will require annual oil and gas licensing rounds subject to stringent new emissions and imports tests.

The domestic oil and gas industry is vital to the UK’s energy security and economy. The introduction of regular licensing for exploration will increase certainty, investor confidence and make the UK more energy independent. This new regime will be subject to 2 key tests being met: that the UK is projected to remain a net importer of both oil and gas; and that the carbon emissions associated with the production of UK gas must be lower than the average of equivalent emissions from imported liquefied natural gas.

Supporting continued production in the UK will also reduce reliance on higher-emission imports – with domestic gas production having around one-quarter of the carbon footprint of imported liquefied natural gas.

The oil and gas industry supports around 200,000 jobs in the UK and adds £16 billion annually to the economy – with fossil fuel producers expected to pay around £50 billion in tax over the next 5 years.

The sector is also playing an important role in helping the UK reach the net zero target by drawing on existing supply chains, expertise and key skills – needed for low-carbon industries such as tidal power, offshore wind, and carbon capture and storage.

Supporting continued domestic production will therefore help deliver on the Prime Minister’s priorities to grow the economy while realising the UK’s net zero target in a pragmatic and proportionate way.

Secretary of State for Energy Security and Net Zero Claire Coutinho said:

The UK has cut its emissions faster than any of its peers. But as the independent Climate Change Committee acknowledges we will need oil and gas even after we reach net zero in 2050.

As energy markets become more unstable it’s just common sense to make the most of our own homegrown advantages and use the oil, gas, wind and hydrogen on our doorstep in the North Sea. Rather than importing dirtier fuels from abroad, we want to give industry the certainty to invest in jobs here and unlock billions of pounds for our own transition to clean energy.

While the government is scaling up domestic clean energy sources such as offshore wind and nuclear, the UK still relies on oil and gas for its energy needs. This will continue to be the case over the coming decades, and even after 2050, as data published by the independent Climate Change Committee shows.

The new Bill will bolster domestic energy supplies by requiring the North Sea Transition Authority (NSTA), the independent regulator for oil and gas, to run annual oil and gas licensing rounds, inviting applications for new production licences in the UK’s offshore waters.

Mark McAllister is today (2 November 2023) confirmed as the next Chair of Ofgem – strengthening the government’s work to build a more secure and affordable energy system.

The incoming Chair will take up the role at an important time for regulator Ofgem as they work to reform the energy market to best serve consumers.

Responsible for protecting consumers from high energy bills, restoring confidence and resilience in the retail market, and supporting progress towards net zero, Mr McAllister’s leadership will help shape Ofgem’s work in years ahead.

He will also work closely with the government to support more households to move towards cleaner, cheaper energy generated in the UK.

The Energy Security and Net Zero (ESNZ) Select Committee approved the appointment, following a hearing in October.

Energy Security Secretary Claire Coutinho said:

I am pleased Mark McAllister is set to take up the position of Ofgem Chair, bringing over 40 years of outstanding experience in the energy industry to the role.

By working together with Ofgem, we will continue to ensure the energy market works for consumers, delivering lower bills and cleaner energy – with prices already down 55% since their peak.

Incoming Chair of Ofgem Mark McAllister said:

Energy prices, security of supply and decarbonisation of the energy system are some of the most important challenges facing the UK today and which Ofgem plays a key role in addressing.

I am looking forward to working with the new Board, management and entire Ofgem team to protect energy consumers and to help realise a net zero energy system through both our regulatory and delivery responsibilities.

I am keen to engage with all stakeholders, including industry, consumer groups and charities to find the best solutions to the challenges we face together.

The government is continuing to provide targeted support this winter, including £150 off energy bills for over three million households through the Warm Home Discount, alongside Winter Fuel and Cold Weather payments.

This comes on top of £900 cost of living support for those in need, as well as nearly £40 billion to cover around half a typical household’s energy bill last winter.

Working in conjunction with the Ofgem price cap, the government’s Energy Price Guarantee also remains in place until March 2024 to help safeguard families from high costs.

Mr McAllister will take up his role on 6 November 2023.

Notes to editors

The Gas and Electricity Markets Authority (GEMA), or the Ofgem Board, comprises non-executive and executive members, and a non-executive chair. Members are appointed by the Secretary of State for Energy Security and Net Zero.

The biggest piece of energy legislation in the UK’s history has become law today (Thursday 26 October), laying the foundations for an energy system fit for the future.

The Energy Act 2023 has received Royal Assent and will transform the UK’s energy system by strengthening energy security, supporting the delivery of net zero and ensuring household bills are affordable in the long-term.

The Act will deliver a more efficient energy system in the long-term, helping to keep energy costs low. It will do this by increasing competition in Great Britain’s onshore electricity networks, through a new tender process – reducing costs for network operation and development. This new model is expected to save consumers up to £1 billion off their energy bills by 2050.

A specific merger regime for energy networks will also be created under the Competition and Markets Authority. This will minimise the risk of mergers between energy network companies having detrimental effects on consumers and is estimated to save households up to £420 million over the next decade.

There are also new measures for Energy Smart Appliances to prioritise safety and give consumers the confidence to transition to smart products, helping them to manage their energy consumption and reduce their bills. A smart electricity system could reduce system costs by up to £10 billion a year by 2050.

The government is expanding Ofgem’s remit to heat networks, allowing the regulator to set rules on excessive pricing and improve the quality of service for the half a million heat network consumers across the country.

The Act includes new consumer protections and frameworks, incentivising the heating industry to invest in low-carbon heat pumps, and including powers to deliver the smart meter rollout by 2028 – which could generate total bill savings to households of £5.6 billion.

Energy Security Secretary Claire Coutinho said:

The Energy Act is the largest piece of energy legislation in a generation. It will boost investment in clean energy technologies and support thousands of skilled jobs across the country.

It lays the foundations for greater UK energy independence, making us more secure against tyrants like Putin, and helps us to power Britain from Britain.

The Act also supports our new approach to make sure that families don’t feel a disproportionate financial burden as we transition to net zero, and forms a central part of our efforts to keep people’s bills affordable in the long-term.

Minister for Nuclear and Networks Andrew Bowie said:

The Energy Act is a statement of intent to support a flourishing British nuclear and low-carbon energy sector.

It will help create of thousands of skilled jobs and deliver real benefits for people across the UK – from cleaner energy to affordable bills.

The government has listened to industry and modernised our energy legislation, creating the framework for further green growth.

The Act will help the government deliver net zero by 2050 in a pragmatic, proportionate and realistic way. It updates Ofgem’s remit so that it considers net zero targets as part of its everyday decisions and facilitates the first large village hydrogen heating trial – providing crucial evidence on the technology’s role in decarbonising heat.

The government is also introducing a licensing framework for CO2 transport and storage to help deliver the UK’s first carbon capture sites – supporting up to 50,000 jobs by 2030.

These new laws also make the UK the first country to legislate for fusion regulation, enabling developers to plan with confidence and encourage investment into this flourishing technology, and driving the UK’s ambition for a prototype fusion power plant by 2040.

Establishing a new independent body – the Future System Operator – will ensure consumers can access a secure and decarbonised energy supply, key to enhancing the country’s energy security. The FSO will be responsible for systems in the gas and electricity network developing efficiently and keeping consumer bills low.

Emma Pinchbeck, Chief Executive of trade body Energy UK, said:

As the world shifts its focus towards net zero, the energy sector needs long-term certainty to remain internationally competitive and attract private investment. This critical piece of legislation is a welcome step in delivering that confidence by establishing new business models, improved customer protections, and frameworks for investment across the energy sector.

The broad-ranging measures in this Act are part of a collaborative effort between government, industry, business and consumer groups to deliver a modern energy system fit for the changing needs of the 21st century energy market. More work remains to establish frameworks that these powers enable, but this Act will be the foundation upon which the new energy system will be built.

Ofgem CEO Jonathan Brearley said:

We welcome the Energy Act getting Royal Assent. It is the most significant energy legislation for a decade and a world-first in giving us a legal mandate targeting net zero.

It gives Ofgem the powers to drive through the energy transition – unlocking investment, accelerating planning and building the infrastructure the economy needs. This will give us security from volatile world gas markets and end our dependency on fossil fuels.

Consumers have faced a huge number of challenges in recent years, with high energy prices and cost-of-living pressures. The Act will give extra protection for existing and future customers, while powering the journey to net zero at the lowest possible cost to households and businesses.

We’re now working closely with government, consumers and sector to implement the legislation in full.

Clare Jackson, CEO of Hydrogen UK, said:

Today’s news is warmly welcomed by the UK’s low carbon hydrogen industry, and adjacent sectors who rely on hydrogen for their own decarbonisation journey.

The passing of the Bill has been a priority for the hydrogen industry as it will lay the foundations for the UK’s future hydrogen economy, by creating provisions for a Hydrogen Production Business Model, and Hydrogen Transport and Storage Business Models.

This firmly indicates to the global hydrogen economy and international investors that the UK is serious about its net zero future, and the role hydrogen can play in it.

John Pettigrew, CEO of National Grid, said:

We welcome the passing of the Energy Act into legislation. This is a crucial next step in delivering a secure, affordable and clean energy future, establishing the needed policy and governance foundations to deliver on the UK’s net zero ambitions.

In particular, establishing a Future System Operator will be critical in delivering strategic, whole system energy planning and oversight as we continue to transform our energy infrastructure.

Only by working together as an industry, with the regulator and government, can we hope to achieve an energy transition that delivers for everyone and an energy system that is clean, fair and affordable for all.

New Non-Executive Directors have today (Friday 13 October 2023) been announced to join Ofgem as the government strengthens the energy regulator’s work to protect consumers.

Responsible for bringing independent oversight and support, the new Non-Executive Directors will help guide Ofgem’s work on current and future challenges – from restoring resilience in the energy market to maintaining progress towards the UK’s net zero goals.

The 5 new Non-Executive Directors are:

• Warren Buckley, outgoing Chair of Citizens Advice
• Alena Kozakova, Director at E.CA Economics
• Graham Mather, President of the Infrastructure Forum
• Jonathan Kini, Non-Executive Director at Ofwat
• Dr Tony Curzon Price, former advisor at the Department for Business, Energy and Industrial Strategy (BEIS), Cabinet Office and Number 10

As the government takes a more pragmatic and proportionate approach to net zero, it will work closely with Ofgem and the new Non-Executive Directors to deliver a more flexible and innovative retail market that can provide cheaper, cleaner energy to families.

This includes comprehensive new reforms to energy infrastructure, helping to speed up planning for the most nationally significant projects and giving every community a say.

Minister for Energy Consumers and Affordability Amanda Solloway said:

Protecting households from high energy bills and supporting them towards using cleaner, cheaper energy is integral to our plan for reaching net zero.

Bringing a rich breadth of experience in consumer protection, and areas including competition and regulation, Warren, Alena, Graham, Jonathan and Tony will be strong new additions to Ofgem’s Board.

I look forward to working with them on our shared mission to champion the rights of energy consumers and build an energy market fit for the future.

The new appointees will further enhance Ofgem’s work to support gas and electricity consumers, ensuring their energy needs are met on the path to net zero.

With energy prices down by 55% from their peak, the government will continue to support the most vulnerable through winter – on top of the £40 billion already provided last year to cover around half a typical household’s energy bill.

The 5 appointees, who take up their posts in November, will work with existing Non-Executive Directors Myriam Madden and Barry Panayi, as well as Ofgem’s new Chair and Executive Committee.

Notes to editors

The Gas and Electricity Markets Authority (GEMA), or the Ofgem Board, comprises non-executive and executive members, and a non-executive chair. Members are appointed by the Secretary of State for Energy Security and Net Zero.

Warren Buckley has spent over 30 years in consumer and customer service leadership roles across the corporate and charity sectors. He has led large service delivery and retail teams at Vodafone, Lucent Technologies, Avaya, Orange, BT, Openreach, HSBC and Thames Water. He is the outgoing chair of National Citizens Advice, having served on the board for 11 years and was previously the chair of the Business Disability Forum.

Alena Kozakova is a competition and regulatory economist with experience spanning the public and private sectors, and currently co-leads the London practice of E.CA Economics, an antitrust consultancy. She was previously the Chief Economist at Ofwat. She worked for the predecessors of the Competition and Markets Authority, the Competition Commission and the Office of Fair Trading, and for the Directorate General for Competition at the European Commission. She also worked at Frontier Economics and in the consumer body Which?.

Graham Mather has served on the Monopolies & Mergers Commission and the Competition Appeal Tribunal, as well as on the boards of the regulators Ofcom and the Office of Rail & Road. With experience in competition, regulation, law and economics, he was appointed CBE for services to economic regulation, competition and infrastructure development. He is President of the Infrastructure Forum. Earlier in his career he was General Director of the Institute of Economic Affairs, Head of the Policy Unit at the Institute of Directors, as well as a Member of the European Parliament from 1994 to 1999 serving on its Economic & Monetary Affairs Committee.

Jonathan Kini most recently worked as Managing Director of TalkTalk’s Consumer and Business Division and continues to support the business on mergers and acquisitions. Prior to this, Jonathan has held senior roles in Virgin Media and Vodafone and previously worked for Drax Plc as CEO of its Customer Businesses. He has held advisory roles at the Bank of England and Chaired the Business in the Community (BITC) Net Zero Carbon Taskforce. Jonathan is currently Non-Executive Director of regulator Ofwat, which is responsible for maintaining standards across the water and sewerage industry, in important areas including customer service and environmental protection.

Dr Tony Curzon Price is an economist with particular interests in technology, energy, environment and economic regulation. He has worked as an advisor in BEIS, the Cabinet Office and Number 10, as well as the Competition and Markets Authority and the Financial Conduct Authority. He has been a technology and media entrepreneur, and spent 4 years in Silicon Valley. He has been involved in UK energy/environment policy for over 30 years.