Renewable generation procured in the next CfD auction could result in over £11 bn of savings for consumers up to 2050
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Analysis of market data by LCP Delta has highlighted this year’s CfD auction1 could procure up to 19GW of renewable power and save consumers over £11bn through lower electricity prices.
The upcoming Allocation Round 8 (AR8) is a major auction to deliver the required additional capacity that is needed to reach the government’s Clean Power 2030 target as time is running out. For offshore wind, AR8 is the last chance to procure additional capacity for 2030 while for onshore wind and solar it is likely to be the penultimate auction.
LCP Delta has highlighted that AR8 procurement at the proposed strike prices could deliver consumer savings from 2027 to 2050 of more than £11 billion. These savings are primarily driven by lower wholesale electricity prices, as additional renewable generation displaces more expensive thermal generation. This reduces wholesale costs by approximately £51 billion. These benefits are partly offset by an estimated £38 billion increase in CfD costs, alongside around £2 billion of additional costs associated with balancing and capacity adequacy.
This year's auction is being conducted against a backdrop of changing priorities for the government and marks a significant shift in the evolution of the CfD regime. With policymakers placing greater emphasis on consumer bill impacts and value for money, AR8 will be shaped by a more flexible approach to budgets and strike prices than in previous rounds. As a result, auction outcomes will depend not only on competitive bidding from developers, but also on how government balances affordability, energy security and clean energy ambitions.
LCP Delta analysis finds that DESNZ’s new value for money assessment means that:
- AR8 could procure up to 19GW of renewable generation across offshore wind, onshore wind and solar PV when auction pots are optimised on a system-wide basis.
- Renewable capacity procured through AR8 could deliver more than £11 billion of savings for consumers by 2050.
- A £92/MWh strike price for offshore wind, similar to the level that cleared in AR7, would represent value for money for consumers, and DESNZ may look to potentially procure up to 6GW of offshore wind power. Solar and onshore wind projects would require a lower strike price but may be limited by the available supply chain.
Our analysis demonstrates that continuing to invest in low cost renewables reduces customer bills and reduces our reliance on gas. Allocation Round 8 provides an opportunity to continue to build momentum, securing more clean, home-grown power while delivering value for consumers. It is also a different kind of auction and while these changes will mean that the government has greater flexibility to help create new opportunities and deliver consumer value, it does mean greater complexity that participants will need to navigate.
Sam Hollister Head of UK Market Strategy, LCP Delta
Our analysis shows that consumer benefits are potentially substantial as increasing levels of renewables would reduce our exposure to international gas markets. The size of the benefit though depends on uncertain market, system and policy assumptions and Government will need to consider a range of factors when making its value for money assessment.
Bertalan Gyenes Senior Consultant, LCP Delta
1. A CfD auction is a government-run competition where renewable energy projects bid for a guaranteed power or ‘strike price’, helping bring forward low-carbon generation at the lowest possible cost.
