Offshore wind a big driver of generation installed under CfD scheme

Key findings

• 5.2GW of installed capacity supported by the CfD scheme by the end of 2020, providing GB with 22.0TWh of renewable generation.
• The first three months of 2021 saw operational capacity under the CfD rise to 5.6GW*, with a total of 6.4TWh of generation from these assets.
• Forecasts from Cornwall Insight shows CfD capacity will rise to 6.8GW by the end of 2021.
• Generation from CfD fleet in 2021 is forecasted to generate 25.8TWh** across 2021. Almost 10% of total GB generation.
• Offshore wind represents a large proportion of the increase, with almost 3.0TWh of the forecast 3.8TWh increase coming from this technology.

Lee Drummee, Analyst at Cornwall Insight, said: “The big driver of the CfD capacity this year is offshore wind. In fact, forecasts indicate that over next winter, monthly generation from the CfD fleet could total between 2.5TWh and 3.0TWh. Whilst this is still only around 10% of monthly demand levels for the winter months, the variable nature of wind generation is increasingly impacting the market over these periods. Already in 2021, we have seen the standard deviation of day-ahead power prices - a good proxy measure for volatility - increase substantially compared to previous years. Whilst also driven by wider weather and plant outage factors, low wind output across Q1 2021 is also a driver.

“Additionally, Cornwall Insight has updated its capture price views for wind technologies to reflect the increasingly cannibalised nature of wind values in the power market. These are now significantly below the typical baseload price view, meaning wind assets earn a discount against typical market prices. Our forecasts also show these factors will increase in the future as further offshore wind developments under the scheme. Meanwhile, the system will also become more sensitive to periods of high demand and still weather conditions which can see significant price spikes, as observed in January this year.

“Aside from the power price impact of greater renewable penetration. The rise in intermittent generation also poses greater challenges for National Grid ESO and the generation market regarding system balancing. Actions taken by the ESO on the BM to keep the system balanced on a second-by-second basis are also expected to increase.

“Over the coming years, the CfD will be instrumental in changing the GB generation landscape with 1.9GW scheduled to come online in 2022 and a further 9.9GW between 2023 and 2027 under previous AR2 and AR3 rounds. The upcoming AR4 auction could procure up to an additional 12GW of further capacity, with a substantial proportion expected to be reserved in the auction for offshore wind in a new ‘Pot 3’ category.

“Our Renewable Pipeline Tracker shows that over 7GW of shovel ready offshore wind projects could enter the AR4 auction. The pipeline beyond this is even larger, with over 30GW of preliminary offshore wind projects in an early “scoping” stage and actively engaging in current Crown Estate Offshore Leasing Rounds.”

_{* Based on the expected start dates of CfD projects from the April 2021 CfD register.}

_{** Using load factor assumptions determined by BEIS in previous CfD allocation frameworks}