The U.K. has reversed what had amounted to a ban on support of onshore wind and solar, opening a new route to market via the contracts for difference (CFD) auctions.

In 2015, the Conservative government blocked both onshore wind and solar from accessing the CFD program, the U.K.'s main method for supporting renewables, and offered no replacement. Once the preceding renewable obligation scheme closed to large-scale solar in 2015 and wind the year after, all available backing for the technologies ended.

A consultation for the next round of the auction, launched Monday, confirmed that both onshore wind and solar would be included. Floating wind projects will also likely be given their own access to the CFDs without having to compete with fixed-bottom offshore wind as they currently do.

Both onshore wind and solar markets have stalled in recent years, even as the U.K. has maintained its global leadership in offshore wind.

The U.K. built 629 megawatts of onshore wind in 2019, but all but one of those projects had previously qualified for support under the shuttered subsidy programs. That compares to 2017, the peak year for installation, when the U.K. added 2.6 gigawatts of onshore wind.

The decline has been even worse for solar, with just 233 megawatts built last year in what was once a leading global market. The U.K. built 4 gigawatts of solar in 2015.

The key question of how much support will be available for onshore renewables remains an open one. But that support for new land-based wind and solar projects is even politically possible now is a big victory for the sector.

“The Government is pressing ahead with action to meet our net-zero emissions target quickly and at lowest cost to consumers and businesses,” said Hugh McNeal, chief executive of trade body RenewableUK. “As one of the U.K.’s cheapest power sources, new onshore wind projects will be a huge boost for jobs and investment in local economies across the U.K.”

The CFD program requires bidders to offer power at a set strike price. If the wholesale power price dips below this, the government makes up the shortfall. If the wholesale price is higher, the extra revenue is paid back to the authorities. The contracts last 15 years.

A new climate for U.K. energy policy

Former Prime Minister David Cameron said in 2014 that the public had “had enough” of onshore wind before backing nuclear power and fracking as the keys to U.K. energy security.

That was perceived as an effort to appease middle-class rural voters who opposed the siting of new wind farms. Today’s move is partly a nod to the U.K.’s role as host of the U.N. climate change talks later this year and the widespread, cross-party support for decarbonization.

Attitudes about climate change have shifted dramatically in the country, with the issue rising up the agenda in last year's election that gave Prime Minister Boris Johnson a strong mandate. The government has already significantly increased the offshore wind target from 30 to 40 gigawatts by 2030 and accelerated the phaseout of combustion engines.

Access to support is one thing; the level of support is quite another. The budget and design for each CFD round are determined after the consultation period. The next round is scheduled for September 2021.

The CFDs historically have been split into two streams. Prior to the ban, onshore wind and solar competed in the established technology track. Offshore wind is considered to be an emerging technology. The consultation launched Monday has asked for views on whether a third pot, dedicated to fixed-bottom offshore wind should be considered. Floating wind projects would compete for budget with other emerging technologies such as geothermal and combined heat and power biomass plants. No scenario has been mooted that would pit onshore and offshore wind against each other.

The question of energy storage has also been raised. Storage can be co-located with CFD projects but there are no fringe benefits and they need their own meter. Now the government has asked how it might "facilitate" the co-location of storage in future auction rounds.

A lot has happened since the ban started, including Brexit. Offshore wind prices in the most recent CFD auction dipped below £40 ($51) per megawatt-hour. The government has also legislated a 2050 net-zero emissions target that could require renewable generation to quadruple from current levels by that date.

The European Investment Bank considers offshore wind to be early-stage rather than an emerging tech. It has said floating offshore wind will be eligible for innovation funding.

One change not put to the industry for consideration is a shift to annual auctions that many in the offshore wind sector think would smooth out supply chain and permitting bottlenecks.

Rebuilding a depleted project pipeline

RenewableUK said the current pipeline of shovel-ready onshore wind projects stands at 3,407 megawatts. The bulk of this is in Scotland where wind resources are strongest.

“Access to the contracts for difference mechanism does not mean subsidy," said Scottish Renewables Chief Executive Claire Mack. "The most competitive projects will be delivered at prices far below the wholesale cost of power, with a Scottish Renewables study in 2017 showing they will actually deliver money back to the government."

Several unsubsidized solar projects have been constructed recently. One unsubsidized onshore wind project has been financed, the 47-megawatt Gordonbrush extension in the north of Scotland.

Speaking at the time of that decision, Jim Smith, managing director of the developer behind it, SSE Renewables, urged the government to back the technology. “Onshore wind is the cheapest form of low-carbon generation and brings job and investment to rural communities. Yet despite the climate emergency, onshore wind construction is at the lowest it has been in a decade,” he said.

A study by Vivid Economics estimated that the path to net-zero emissions would require 27 gigawatts of new and repowered onshore wind projects to bring the current 9 gigawatts of capacity up to 35 gigawatts by 2035. This ramp-up of onshore wind would also knock £50 off consumers’ bills, according to the study.

A proposed solar project in southeast England, which could amount to as much as 300 megawatts, completed its planning review on Friday. The U.K.'s Business, Energy and Industrial Strategy minister Alok Sharma will have the final say on whether the site is granted approval and must make the decision within three months.

The solar-plus-storage site, and other existing subsidy-free projects, would presumably be eligible for future CFD auctions, a prospect that could tilt the economics of many marginal subsidy-free projects in the early stages of predevelopment work.