Ministers are considering an overhaul of the bidding process to fund new renewable energy projects in an effort to create green jobs, amid Joe Biden’s subsidy race.
The government said on Monday it has begun a review of the “contracts for difference” (CfD) scheme, which is used to determine the price of electricity from offshore wind and solar farms, with the aim of adding factors such as how many jobs they create to the regular auctions.
The move comes partially in response to the net zero review by the former energy minister Chris Skidmore and amid a global race to provide greater subsidies for renewables projects following Biden’s $369bn (£297bn) Inflation Reduction Act package.
Ministers are under pressure to boost the domestic supply chain for renewables projects and speed up Britain’s transition away from fossil fuels with the aim of reaching net zero by 2050.
Under the CfD scheme, the government awards 15-year contracts for low-carbon power generation projects such as solar and offshore windfarms.
Renewable energy generators bid for contracts to produce electricity, but the government can set a limit on how much capacity it wants in the auctions and can cap how much cash it provides as incentives.
The CfD system aims to give investors certainty over the levels of returns they can receive, amid wild swings in the price of power – as witnessed during the energy crisis.
Now, officials will examine whether the scheme can be revamped to reward developers that offer undertakings on more than just providing a certain amount of power within an agreed price range.
Prices for consumers have consistently fallen as technology to build renewables projects has improved over the past two decades.
The government said in a statement that, beyond cost, the reforms could result in “non-price factors” including “supply chain sustainability, addressing skills gaps, innovation and enabling system and grid flexibility” being included in the bidding process.
It said developers that invested in long-term supply chains may be able to cut their carbon footprint and train up technicians to work on even larger projects needed in future.
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The energy minister, Graham Stuart, said the government wanted to “maximise” the potential of the CfD scheme “to improve energy security and ensure renewable energy developers can make the necessary investment in supply chains and innovation”.
Adam Berman of the trade body Energy UK welcomed the move and said it could help give investors greater certainty given that “inflation, commodity price increases, and pressure from international competition mean that the UK will have to continue working hard to pull in the investment required to reach our net zero and energy security goals”.
Josh Buckland, a partner at consultancy Flint Global and former energy adviser at the business department, said: “Given British consumers ultimately bear the cost of support for green electricity through their bills, its right that government is looking to ensure households get maximum value for what they are paying, including unlocking more investment in UK supply chains.”
This year’s auction got under way last month with a budget of £205m to allocate to projects in England, Scotland and Wales, including £35m for emerging technologies such as a geothermal energy and floating offshore wind. The results are expected in late summer or early autumn.
