The UK Government is consulting on an important change to the contract for difference (CfD) initially for offshore wind projects (both fixed and floating) but has made it clear that the change may ultimately extend out to other renewable technologies.  Anyone looking at bidding in projects to future CfD allocation rounds beyond Allocation Round 6  needs to be aware of this.

The concept of “Sustainable Industry Rewards” (SIRs) aims to reward projects for investments and contributions that add to the economic, environmental and social sustainability of offshore wind. 

SIRs and the process to obtain them, will apply from Allocation Round 7 onwards in 2025.  There will be an application procedure ahead of the CfD round opening for projects to submit details on how they intend to deliver the sustainability etc. criteria that the Government is offering support for, along with their estimated cost of delivering those criteria. Proposals would then be scored on a combination of the quality and the cost of delivering them.

The share of the CfD SIR budget assigned to each successful proposal could be delivered as a reward added to an applicant’s CfD payments,  provided the applicant goes on to win a CfD contract.  A financial uplift so that the applicant's sustainability proposals can be implemented.

The consultation mentions that applying for and obtaining these SIRs, may be a pre-requisite for being allowed to participate in the CFD round and Government is proposing for example, to set minimum SIR requirements before a project is eligible to enter the CfD Allocation Round.  The Consultation also flags that SIRs could replace the current requirement in the CfD for supply chain plans.

SIRs will become contractual obligations as part of the CfD contract. Therefore, the Government could introduce a performance related adjustment mechanism in relation to the SIR payments. Any SIR commitment that is not met would not be eligible for payment. A partially met commitment would result in partial payment. 

SIRs will, like the costs of the CfD itself,  be financed by consumers of energy and projects will get the money via the Low Carbon Contracts Company.  

Examples of the types of investments and contributions that will be measured and judged, are investments into deprived areas such as manufacturing, training facilities etc., monies spent on small and medium size enterprises through the contracts that are let.

One of the big issues with the current consultation is that investment into deprived areas is not specific to the UK.  It can include certain other countries that make up part of the North Seas Energy Cooperation Area e.g Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway and Sweden, with the controversial result that projects can be rewarded for investments into other countries with the UK energy consumer funding that reward. 

From a practical perspective a project developer in offshore wind (fixed or floating) will face extra administrative burdens and an extra process to get a CfD.  The plus side of course, is that those successful will get increased overall payments to fund the commitments.