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■ the Capacity Market , being a market to ensure the security of electricity supply based on the government ’ s forecast of electricity demand ;
■ renewables obligations certificates ( see question 3.7 for more detail ); and
■ access to markets via long-term contracts for independent renewable generators ( including power purchase agreements ( PPAs )), and through liquidity measures to enable the government to improve the liquidity of the electricity market .
The Electricity Act is the principal legislation governing electricity generation generally , including from renewable sources . Subject to applicable exemptions , an electricity generator requires a generation licence from Ofgem to operate . See question 4.1 for more detail .
2.5 What are the main challenges that limit investment in , and development of , renewable energy projects ?
The challenges include :
■ Uncertainty as to the long-term laws , policies and the associated incentives relating to the renewable sector that may be adapted by successive governments is a challenge to any investment modelling . For example , onshore wind projects benefitted from certain government subsidies that were then removed in 2016 , and then , in early 2020 , onshore wind subsidies were revived .
■ Intermittency of output ( given that renewable sources , by their nature , will vary and not be continuous ) presents an issue for renewables integrating into a stable power supply . This can be mitigated , to some extent , with energy storage systems . However , whilst the technology is developing rapidly and the costs are falling , such storage systems can be expensive ( particularly on large-scale projects ).
■ Much of the technology involved with renewables projects is new or rapidly evolving and there is an investment risk associated with any nascent technology , including in respect of deployment issues and risk of obsolescence .
■ Grid inflexibilities mean that integration of variable renewable sources into grid infrastructure creates increased complexity , including with respect to balancing supply and demand .
2.6 How are large utility-scale renewable power projects typically tendered ?
The CfD scheme is the government ’ s main mechanism for supporting low-carbon electricity generation ( see question 3.2 for more detail ).
CfDs are awarded in a series of competitive auctions , which drives efficiency and cost reduction . To date , there have been four successful CfD allocation rounds . 10.8GW of UK onshore and offshore wind , solar , tidal stream and other renewables were awarded CfDs in the recent fourth allocation round announced by BEIS in July 2022 ( 99 contracts in total ). These projects are due to come online in 2023 – 24 . The fifth allocation round , planned to open in March 2023 , is expected to be the beginning of annual allocation rounds ( rather than every two years ).
2.7 To what extent is your jurisdiction ’ s energy demand met through domestic renewable power generation ?
The share of UK electricity generated from renewable sources has increased dramatically in recent years , with a 500 % increase in the amount of renewable capacity connected to the National Grid from 2009 to 2020 .
In Q1 2022 , the renewable share of total electricity generation was 45.5 %. This is the second-highest quarterly share on record ( since Q1 2020 ).
32 Sale of Renewable Energy and Financial Incentives
3.1 What is the legal and regulatory framework for the sale of utility-scale renewable power ?
The Energy Act and related secondary legislation provide the main legal and regulatory framework for the sale of utility-scale renewable power in the UK and implement the UK ’ s Electricity Market Reform policy . The Energy Act supplements the Electricity Act and the Utilities Act 2000 , which provide a legal and regulatory framework for the wholesale electricity market generally in the UK .
3.2 Are there financial or regulatory incentives available to promote investment in / sale of utility-scale renewable power ?
The primary incentive schemes related to renewable energy include :
The CfD scheme : the CfD scheme is the primary mechanism to incentivise new low-carbon electricity generation . The CfD is a quasi-PPA between an eligible generator and the Low Carbon Contracts Company ( LCCC ), a wholly government-owned company established under the Energy Act . Generators with a CfD sell their electricity into the wholesale electricity market in the typical way ; the CfD then pays the difference between an estimate of the market price for electricity and the generator ’ s lowest estimate for the costs of developing , financing and operating the given technology ( the strike price ). When the market price is below the strike price , the generator receives a top-up payment from the LCCC for the additional amount . However , when the market price is above the strike price , the generator must pay back the difference to the LCCC . Although a CfD is a private law contract between a low-carbon electricity generator and the LCCC , it is issued under a detailed statutory framework under the Energy Act .
The Offtaker of Last Resort ( OLR ) scheme : the OLR scheme aims to promote the availability of PPAs . It is intended as a last resort to help independent renewable generators who cannot get a PPA through the usual commercial means by providing eligible generators with a guaranteed “ back-stop ” route-to-market at a specified discount to the market price .
Green Gas Support Scheme ( GGSS ): the GGSS provides financial incentives for new anaerobic digestion biomethane plants to increase the proportion of green gas in the gas grid . Participants will receive quarterly payments over a period of 15 years , based on the amount of eligible biomethane that a participant injects into the gas grid . The GGSS is open to applicants for four years from 30 November 2021 .
3.3 What are the main sources of financing for the development of utility-scale renewable power projects ?
The offshore wind sector currently represents the primary source of financing activity for large-scale renewable projects in the UK . In recent years , a low interest rate environment coupled with a large number of lenders looking to participate in this sector has provided project developers with favourable conditions to finance their projects in recent years . To date ,
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