CfD set to make a big difference for UK renewables sector

With the Government committing an apparent volte face on its renewable energy policy, the sector is now gearing up for what could be a whirlwind of activity when it comes to UK onshore wind developments. Six months after commencement of construction of the first subsidy free onshore wind project in Scotland, the UK Government now appears to have come full circle in light of its net-zero carbon emissions target. Earlier this month it published a consultation which proposes changes to the Contracts for Difference (CfD) scheme to allow onshore wind projects to bid for funding when its next round opens in 2021. The consultation is ongoing with a deadline of 22 May 2020 for stakeholder and other interested parties to input.
This marks a dramatic change from 2015 when the UK Government ended onshore wind farm subsidies which led to most developers turning their focus to offshore wind and other less established technologies. As a result, we’ve seen a significant reduction in onshore wind projects coming online since that time. The commercial terms of land agreements look vastly different to what they once were because onshore developers have spent the last few years opening up existing land agreements for proposed wind farm developments to lower rents and provide more flexibility around the permitted use. This included allowing co-location of battery storage and other types of energy on sites to make onshore wind development viable in a subsidy free environment.

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Last September construction began in Scotland on the first UK onshore wind project since subsidies were removed. While this shows it remains possible to develop onshore wind without support, there has been a clear feeling that access to the CfD scheme or another form of support mechanism could really revitalise the sector. This will make a significant difference to the viability of many projects, including those situated on more challenging sites, and should ensure that onshore wind can make a bigger contribution to the UK Government’s ambitious climate change targets.

Developers who have spent the last few years renegotiating existing land agreements and now have sites are ready to develop are well-positioned to benefit from the CfD announcement. Meanwhile those who had committed to developing onshore wind in the subsidy-free environment and are currently in the process of securing new sites may face more competition from rivals who are also looking at onshore wind again.

Securing land rights for new sites is not a straightforward process. These sites are now becoming increasingly complicated as a result of existing windfarms and infrastructure in locations which have significant wind yields. Many new projects are therefore often extensions of existing projects or rolled out in close proximity to other developments. This causes complications in documenting land rights and the sharing of infrastructure. Compared to the past, this often requires a high level of resource to unpick existing land agreements to accommodate new projects and secure land rights for new sites. As a result, there is an increasing level of additional documentation such as interface and wake loss agreements. Developers will therefore need to ensure they get a head start with landowner negotiations in order to secure land rights as soon as possible.

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Despite these challenges, the UK Government’s proposed changes to the CfD is positive for onshore wind developers and one that is likely to increase activity and promote healthy competition when it comes to securing land rights for onshore wind developments.

It also brings the important benefit of helping the UK achieve its ambition to become a carbon-neutral nation by 2050, if not before.

Claire Wallis, Senior Associate and renewable energy specialist at CMS
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