CfD Stakeholder Bulletin — 3 April 2017

What this is about

BEIS opened the application window for the second CfD allocation round on 3 April 2017, with a budget of £290m for projects delivering in 2021/22 and 2022/23. Applications close at 5pm on 21 April 2017 — an 18-day window.

This is the first competitive CfD round since AR1 in 2015, and it matters because it sets the price at which the next tranche of renewable capacity will be built. AR1 allocated contracts at administrative strike prices with limited competition. AR2 is the first genuine test of whether competitive auction pressure can drive prices below the administered levels. The result will shape the political and economic case for CfDs as a long-term procurement mechanism.

Key points

Budget: £290m across two delivery years. The budget covers 2021/22 and 2022/23, meaning projects must demonstrate they can commission within that window. This is a binding constraint — it excludes projects that cannot credibly deliver on that timeline, which in practice means the round favours offshore wind projects already through planning and with grid connection agreements in place.

The 18-day application window is deliberately tight. This is not an oversight. A short window filters for developers who have done the preparation work: secured planning consent, agreed grid connections, lined up supply chains, and modelled their bid prices. It disadvantages speculative applications and developers who entered the process late. The design is intentional — BEIS wants bids from projects that will actually build, not from options traders holding queue positions.

Pot structure determines who competes against whom. CfD allocation rounds divide technologies into pots. Pot 1 (established technologies: onshore wind, solar) was excluded from AR2 by ministerial decision, meaning the round is effectively an offshore wind and less-established renewables competition. This narrows the field and concentrates the budget on technologies the government wants to support, but it also removes the competitive pressure that cheaper technologies would exert on strike prices.

The auction mechanism is pay-as-clear within each pot. Developers submit sealed bids specifying a strike price — the price per MWh they need to build and operate. The lowest bids are accepted until the budget is exhausted. The clearing price becomes the strike price for all successful projects in that pot. This means the marginal project sets the price for everyone, which creates an incentive to bid low but also means the most efficient projects earn rents above their actual cost of capital.

£290m buys less capacity than it appears. The budget funds the difference between the strike price and the reference price (the wholesale market price) over a 15-year contract. At AR1 strike prices (~£114-120/MWh for offshore wind), £290m per year would support roughly 1-2 GW of offshore wind. If competitive pressure drives prices significantly below AR1 levels — which is the entire point of the auction — the same budget buys more capacity. The result will reveal how much cost reduction the industry has achieved since 2015.

National Grid acts as the EMR Delivery Body. Applications go through National Grid's EMR portal, not BEIS directly. National Grid assesses eligibility (planning consent, grid connection, financial commitment) and runs the sealed-bid auction. BEIS sets the budget and pot structure; National Grid executes the process. This separation is important — it insulates the allocation decision from political pressure on which specific projects should win.

What happens next

21 April 2017: Application window closes. All bids must be submitted by 5pm. Late applications are excluded — there is no extension mechanism.

Late April/May 2017: National Grid assesses eligibility and runs the auction. The timeline between window closure and results announcement is typically 4-8 weeks. National Grid verifies that each applicant meets the eligibility criteria, then runs the sealed-bid allocation.

September 2017 (expected): Results announced. Successful projects are offered CfD contracts. They then have a defined period (typically 12-18 months) to reach financial close and demonstrate progress toward construction, or they lose the contract.

2021/22-2022/23: Delivery years. Successful projects must commission and begin generating within these delivery years to receive CfD payments. The gap between contract award and required delivery is 4-5 years — enough for a large offshore wind project if planning and grid are already secured, but tight if any major consenting or supply chain issues arise.

The result will set the benchmark for AR3 and beyond. If AR2 delivers strike prices significantly below AR1, it validates the competitive auction model and strengthens the case for further rounds. If prices remain high, it raises questions about whether CfD auctions are genuinely competitive or whether the pot structure and eligibility requirements limit the field too much to generate real price discovery. The AR2 clearing price will be the single most important number in UK renewable energy policy in 2017.