Shot in both feet
MARK HODGSON
Now that Allocation Round 7 (AR7) of the UK government’s Contracts for Difference (CfD) scheme has closed (albeit it will be many weeks, if not months, before we know the results) government ministers and officials are already working out how to cost the UK taxpayer even more when it comes to Allocation Round 8 (AR8).
To be more specific, “Contracts for Difference: reforms to the Clean Industry Bonus, Allocation Round 8” can be found here. The consultation (for that is what it is) closes on 6th October 2025. It says it’s about “improving” the Clean Industry Bonus (CIB), which the announcement proudly tells us cost (in addition, I assume, to the substantial cost of CfD subidies generally) £544 million (“to support the development of more sustainable supply chains”) with regard to AR7, being the allocation round where it first made an appearance. To brag about wasting more than half a billion pounds of taxpayers’ money at a time when the Chancellor of the Exchequer seems to be struggling to get a grip on the nation’s finances, is nothing short of scandalous. Yet instead of being embarrassed about it, the government tells us this represents a strong response and is a “positive trajectory”.
The detailed consultation document (which runs to 31 pages) can be found here. At the risk of being a cynic, it reads to me as though this involves bribing renewables companies, at great expense to the UK taxpayer, to behave in a way which should already have been written into the CfD scheme. Bear in mind that the things the government is consulting on didn’t feature in the CIB allocation of £544 million to (probably mostly foreign, though we won’t know for some time yet) renewable energy companies bidding for support under AR7. Firstly, it seems that the government is considering:
Introducing a new criterion aimed at improving minimum levels of workforce protection by encouraging developers and suppliers to commit to discussions on a new offshore wind fair work charter, which will help ensure offshore wind developers and their supply chains offer good jobs, terms and conditions.
It is my view that this should already have been part of any contract offered by a UK government, especially a Labour one, which involves underwriting prices (and therefore minimising business risk) for twenty years (AR7 having increased the contract support period from fifteen to twenty years). It ought to be the “price” renewables companies agree to pay for receiving lucrative de-risked government contracts. It certainly shouldn’t be part of a scheme under which if they agree, they might receive an even bigger bonus.
The same applies to other aspects of the consultation – “to help build the skilled workforce needed” and to encourage cleaner [my emphasis] and shorter supply chains with regard also to onshore wind. Are they admitting that current supply chains aren’t “clean”?
The final bullet point in the introduction rather euphemistically refers to “[r]ectifying minor issues from the initial implementation of the CIB in AR7...so it runs as smoothly as possible for government, developers and the supply chain”.
Clean Industry Bonus scheme description
This section of the consultation document is particularly interesting, because it seems to admit that the changes the government wishes to see implemented would involve renewable energy companies in more expense – but they mustn’t worry, since the idea is that the UK taxpayer will pick up the bill:
The Clean Industry Bonus rewards fixed and floating offshore wind developers who choose to invest in cleaner and more sustainable supply chains. The scheme does this by covering the difference in cost between more expensive but more desirable supply chain investments, compared to cheaper but less desirable investments. This is in effect the difference in cost between investing in cleaner or more sustainable facilities, or in a facility (e.g. blades, cables, ports) in a deprived UK area, versus dirtier or less sustainable facilities. By offering extra CfD revenue support for supply chain improvements, the CIB ensures that the “lowest price wins” aspects of the CfD does not inhibit the supply chain investments we need to support our renewables deployment targets and reduce our reliance on polluting suppliers.
I recommend reading that paragraph again (especially the last seven words) and thinking about its implications. This is clean, green energy? It seems that the terms that ought in all reasonableness be written into a CfD contract between government and renewable energy company as a matter of course, will only in fact be written in if the renewable energy company is also applying for the CIB:
Projects awarded a Clean Industry Bonus will have their commitment written into their CfD contract to ensure delivery. Projects will be monitored at least twice a year to follow progress on delivery. Projects that do not deliver investments will not be paid the Bonus. Partial delivery will only be paid a portion of the CIB equivalent to the portion of their investment delivered.
The only positive thing I can see about this shabby incompetence is that someone involved in this seems to be trying to do their job on the taxpayers’ behalf:
Failure to deliver the minimum standard will incur a corresponding penalty on a developer’s CfD payment.
Proposed reforms to the Clean Industry Bonus
Remember that we are always being told that so-called green jobs are high-quality and generally paying well above the average wage. For example, there’s this puff piece in the Guardian six months ago, based on (surprise, surprise) CBI analysis (“Green sector growing at triple the rate of the UK economy, providing high-wage jobs and increasing energy security”). Apparently that’s not actually entirely true. Here’s what the consultation document has to say:
…there are persistent concerns about workplace standards across parts of the sector, challenges around workforce diversity and wider social inclusion, and there is a mixed picture on trade union access and recognition.
That’s rather worrying, given the amount of taxpayer funding that has already been thrown at the CfD scheme, and which is now going to be on the line for the next twenty years (and more, following AR8, AR9 etc.). I am modestly encouraged to see that the government seems to have worked out that improving this situation should take place as a matter of course, rather than generating a further bonus, but only time will tell. I rather suspect that depends on how the consultation pans out and how renewable energy companies respond generally. The problem for the UK government, of course, is that the industry has it over a barrel, and the industry knows it. The government has given itself no room to negotiate. As the opening paragraph to the consultation document says:
Delivering clean power by 2030 is at the heart of our mission to transform the UK into a clean energy superpower. Reflecting the urgency of the challenge, the Government has taken early action to deliver this goal including ending the onshore wind ban and establishing GB Energy. The CfD is vital in securing the renewables deployment necessary to deliver clean power by 2030, and the Clean Industry Bonus (CIB) has been introduced to support that deployment with the development of more sustainable offshore and floating offshore wind supply chains.
It couldn’t be clearer. Unless the government gives the renewables industry exactly what it wants, then its “mission” certainly won’t be achieved. This is what happens when you’re stupid enough to announce an unfeasible target whose achievement depends entirely on (mostly foreign) third parties whose sole interest is making money out of the project. Still, let’s hope that the following doesn’t turn out to represent nothing more than a pious hope:
Any CIB measure on workforce protection would be delivered either through CIB minimum standards (i.e. CfD entry requirements) or as a condition to receiving bonuses. The government does not believe that the CIB should offer additional ‘bonuses’ (i.e. more subsidy) for such interventions, as high quality jobs should be provided as a minimum by businesses and bonuses would be difficult to quantify in a way that provides good value for money. Strengthening workforce protection in offshore wind through the CIB may necessitate an addition to regulation 6(2B) of The Contracts for Difference (Allocation) Regulations 2014.
Unfortunately, the consultation document then goes on to shoot the government in the foot, by backing away from any idea of compulsion. It says it wishes to make progress via “a new and ambitious offshore wind fair work charter that is co-developed between the offshore wind industry and trade unions, with government playing a convening role.” The government would like it to include “commitments on pay, job security, health and safety, access to trade unions, and employee wellbeing.” That’s excellent – just what a Labour government should be imposing as part of any CfD. Unfortunately, that’s not going to happen any time soon, certainly not in time for next year’s AR8:
We recognise that we cannot encourage sign-up to a full and ambitious fair work charter in time for AR8, as the lead-in times to negotiate the commitments are not compatible with our desire to publish a draft CIB Allocation Framework in the Autumn.
Instead, they are going to require commitment “to participating in discussions” with a view to full implementation in AR9. Big deal! In a sane world, any government offering de-risked contracts with twenty years of guaranteed prices (inflation-proofed, remember) would be able to call the shots. Instead, the government appears as a pathetic supplicant. That much is evident from the words used in the following section – “incentivising”; “discussions”; “could help focus”; “the aim of building consensus” [my emphasis]; “minimum commitments”; “target some of the remaining challenges” [my emphasis]; “encouraging”; “exploring how we can encourage fair work through the CIB [my emphasis].”
It gets worse (if that’s possible). The document says that the measures proposed for AR8 are three-fold. First, “either CIB minimum standards or bonus eligibility requirements would encourage commitment from developers to discussions on a fair work charter.” Encourage commitment? No obligation, then. Second, a condition of eligibility for CIB could have as a condition of eligibility that they be encouraged to commit to discussions. Could the language be any weaker? Third, “the government would commit to convening widespread representation of all key interests in the discussions, beginning this summer.” And that’s it. We are told, in a feeble attempt at justifying this lily-livered and desperately weak approach that it could provide a genuine step towards implementation of a fair work charter in AR9 that offers commitment to the process from both government and industry. Then they say they could consider incentivising sign-up to a full range of (unspecified) commitments.
Options to incentivise developers to participate in fair work charter discussions
Yes, there really is a sub-section of the consultation paper with that heading. So weak is the government’s negotiating position that this is what it is reduced to. Looking for options, needing to incentivise, hoping renewables companies will “participate in discussions.” Two options are under discussion here.
The first option is weak. It says that in order to be eligible for CIB funding, the government could require some or all of the firms in the supply chain to make a public commitment to discussions. Once again – big deal. But it gets worse. To minimise costs and burdens on SMEs (small and medium-sized enterprises) and/or firms with small contract values, they could be exempt from even this modest commitment. Instead, they would be strongly encouraged to commit to discussions on the charter “where possible”. Furthermore “new facilities” might also be exempt, in acknowledgement of the need to avoid them facing “additional challenges to participation”. By which I assume they mean challenges to participation in the CIB, as opposed to challenges to participation in the charter discussions. Nobody must be kept away from the CIB trough!
The second option has taken me down a rabbit hole, so please bear with me while I make a digression. It focuses on suppliers’ eligibility to receive Industrial Growth Plan (IGP) funding via the CIB. Again, this is set out in a thoroughly weak way:
Under option two, suppliers would only be eligible for this funding if they commit publicly to discussions on the fair work charter. However, suppliers who do not make this commitment would still be eligible to be included in CIB investments. While this may lead to less commitment to developing a fair work charter compared to option 1, it could have less impact on investments made through the CIB.
However, let’s take a quick look at IGP funding. This is now delivered via the Offshore Wind Growth Partnership (OWGP) (no, I hadn’t heard of it either). The “about” section of OWGP’s website made my head spin. A quick look at the board of directors opens up a whole new world of bodies and organisations involved in this money-go-round. There’s the Offshore Wind Acceleration Taskforce, ORE Catapult, the Offshore Wind Industry Council, the Scottish Offshore Wind Ports Alliance, and there’s a UK Offshore Wind Champion. Then there’s the grant funding (it’s not clear who is paying for this): there are three Grant Funding Programmes within the OWGP support portfolio: Development Grant Funding, Innovation Grant Funding and Manufacturing Facility Support Programme. It appears that this is all over and above basic CfD funding or the money in the CIB pot.
Back to the consultation paper. At this stage it asks six questions that give renewables companies the ability to say how they would prefer to proceed. Question six tells us everything we need to know about the weakness of the government’s position:
Do you foresee any unintended consequences of the proposed minimum standard on workforce protections? Would it impact your overall investment into CIB- eligible suppliers, or your overall supply chain decisions? Please provide any relevant evidence.
Skills
At this point we learn of the existence of yet another organisation, that must be costing the taxpayer a bit of cash – the Office for Clean Energy Jobs (a team within DESNZ). Here we learn of one of the (many) problems associated with the ‘Clean Power 2030 Action Plan’, namely:
Despite the scale of the skills needs, there has been a steady decline in employer investment in training over the last decade, with real terms investment per employee down 19% since 2011.
The government wants to do something about this, but again its approach to an absolutely critical issue is extremely weak. In the past, we are told, it requested developers to submit, for approval, Supply Chain Plans (SCPs) to be eligible to enter a CfD Allocation Round. These SCPs included a requirement for developers to give an overview of the skills commitments they were making to meet the aims and objectives of the Supply Chain Plan Policy. Obviously, that doesn’t include any obligation at all with regard to improving workforce skills.
And so we learn that the government is now considering introducing a skills criterion into the CIB for AR8. This sounds a bit more like it. But is it? Well, two are options are offered for consultation. The first is to incentivise contributions to a skills investment fund. This fund would be operated and administered by a third party (more bureaucracy and costs, then). Apparently there is an ‘Offshore Wind Industry Council People and Skills Plan 2024’ and the idea is to align with it by using the CIB as a mechanism to incentivise a more collaborative approach to skills investment. There are several paragraphs on this topic, and I recognise waffle when I see it. At the end of them, I’m not much wiser as to whether or not the plan is for this to cost renewables company more money, or whether the taxpayer will end up footing the bill. Given the weakness of the government’s position, and given the consequent weakness of its language throughout this consultation document, have a pretty shrewd idea as to the outcome.
The second option is to incentivise investment in skills at the project level. We are told that:
This could mean setting an amount of a developer’s CIB minimum standard contribution that needs to be spent on skills training activities for their own project. It would be for a developer to decide on how they would spend their minimum standard obligation to meet their skills requirements within an eligible list of skills activities.
The questions at the end of this section again demonstrate that the government is the supplicant here. Question 8:
Do you foresee any unintended consequences from the proposed changes to minimum standards? Would the introduction of either option 1 or option 2 impact your overall investment into CIB-eligible suppliers or your supply chain decisions? Please provide any relevant evidence.
Question 9:
…For option 1, would you prefer contributions to remain voluntary?
Onshore wind
Currently (for AR7) the CIB has applied only to fixed and floating offshore wind. The government is exploring extending it to onshore wind developments for future auction rounds. It sets the scene by shooting itself in the foot at the outset, by stressing the weakness of its position and the concomitant strength of renewable energy companies contemplating onshore wind developments:
Onshore wind deployment is critical to the government’s clean power mission. The Clean Power Action Plan set ambitious targets of near-doubling onshore wind capacity, from 16.3GW of currently installed capacity up to 29GW by 2030…Expanding the CIB to include onshore wind could create momentum for investment in the sector’s supply chains.
Furthermore:
The Onshore Wind Strategy, published on 4 July this year, outlined key actions for ensuring strong and sustainable supply chains. This included improving the quality of onshore wind supply chain data to support future policy decisions, and in tandem, exploring what government can do now to support the onshore wind industry.
Ask not what you can do for the UK – ask instead what the UK can do for you! For it is all about money – “We recognise that the CIB needs to be one of several policies supporting the sector’s growth”. And again we are told that this might help with investing in “cleaner and shorter supply chains” – an implicit acknowledgement that to date supply chains have been neither short nor clean. There is a worry that timescales might be tight to get all this in place in time for AR8, and one of the questions is aimed at that issue. However, question 15 takes us to the heart of the matter:
Were ONW [Onshore Wind] to be included in the CIB, would you apply for additional funding?
Well, what do you think?
Because onshore wind is off the pace in terms of being included in the CIB scheme, the government says it isn’t looking at this stage to include it in the skills element of the proposed CIB reforms. Instead, it would only be affected by the first two criteria – short supply chains; and sustainable supply chains. As regards the latter, the Science Based Target Initiative (is it this – the Science Based Targets initiative?) would review renewables’ companies targets to “demonstrate their commitment to implementing feasible decarbonisation strategies within their organisations”).Perhaps I’m being unfair to the government, but more clarity here would be useful. Is this the organisation they are proposing to do the grunt work here?
The SBTi is incorporated as a UK charity, with a subsidiary SBTi Services Limited, which hosts our target validation services (together with SBTi, the “SBTi Group”). Partner organizations who facilitated SBTi’s growth and development are CDP, the United Nations Global Compact, the We Mean Business Coalition, the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF).
If not, who or what is it? If it is the SBTi, then the least the government could do is describe it correctly, since it seems to have such an important role to play.
At least we learn a little more about the bonuses available to renewables companies in this are:
Developers can put forward a CIB extra proposal to request a bonus in return for investing in a proportion of suppliers that set SBTIs across the components listed above. For offshore wind, this proportion is set at 40%, which reflects what would be expected in a business-as-usual scenario. While the scheme is intended to encourage sign up to SBTI, we recognise that fewer ONW suppliers are signed up to the SBTI than for OFW. We propose that the minimum is set at 30% for onshore wind, which means that at least 4/11 of the components listed above will need to be sourced from suppliers that sign up to the initiative to obtain extra CIB funding.
Minimum funding levels in the supply chain are required to qualify for CBI. Heaven forbid that this should operate as a barrier to receiving the bonus:
This is not set to act as a barrier to taking part in the scheme…To reflect differences in project costs and supply chains, the minimum standard for ONW could also be set lower than for OFW. Our current proposal is to set the minimum standards at £25m/GW, approximately 2% of project construction costs. Based on available supply chain information, this was judged to be a reasonable expectation of current business-as-usual investments into more deprived areas or cleaner supply chains, noting the lower number of eligible suppliers compared to the OFW supply chain, where minimum standards represent approximately 6% of project construction costs. We believe this level will enable projects to meet the minimum standard as part of their natural project expenditure. We recognise that this was calculated using a limited evidence base and commercial expertise and welcome further evidence to inform this figure.
Am I alone in thinking this is absurd? Basically the government seems to be saying it lacks the evidence base and commercial expertise to understand this properly, but the main thing is to ensure that renewables companies will qualify for the bonus without having to alter their business-as-usual model. In other words, most should qualify without having to do anything different from what they are already doing. If I have read that correctly, then this represents free money for no additional effort.
Money
We learn that there is a primary budget for all bids, but there is also a ring-fenced sub-budget for Floating Offshore Wind (FLOW). This sub-budget is a secret “in order to maintain competitive tension and can be adjusted at the budget revision stage by the Secretary of State.” The proposal is to add a separate ring-fenced budget for onshore wind too. Again, the value of this sub-budget is to be kept hidden.
Process improvements
This is largely technical detail that need not concern us here, but one piece of information is of interest:
The first round of the CIB received a large number of applications, with all stakeholders successfully applying and meeting eligibility requirements, and no applicant using the appeals process.
In other words, the renewable companies all got what they wanted and were happy with the result.
Events outside a generator’s control
If you’re a renewables company looking for some money from CIB, don’t worry if there are events outside your control:
The AR7 CIB Guidance describes the process to follow in the event that a generator cannot deliver a CIB commitment due to unforeseen circumstances outside of their control. This includes proposing one or several alternative minimum standard investments. As a last resort, it also allows for the Secretary of State to deem that a generator has met minimum standards when a commitment has not been delivered due to circumstances outside of the generator’s control, when every reasonable effort to deliver the original or alternative commitments have been made. We propose cementing this principle into regulations, with a clause stating that the Secretary of State may deem a generator to have met minimum standards even in the absence of an investment, due to events or circumstances outside of their control.
Question 23 asks:
Do you agree with the proposal to include regulatory amendments related to nondelivery due to events outside of generator’s control?
I suspect the renewables companies do!
Payment on delivery
The scheme currently allows for applicable CIB payments to be released to generators once the project has been successfully commissioned and CfD generation payments begin.
But why wait?
This payment system means that an applicant is likely to receive CIB payments 1-3 years after relevant supply chain investments have been made, given these investments occur in the capital expenditure phase of a project. This means a debt-financed project carries the investment debt longer before CIB payments can offer financial relief, which is assumed to increase overall project financing cost and may increase the cost of the CIB bid itself.
That would never do, would it? We can’t have renewables companies having to behave like ordinary commercial businesses with regard to inconvenient aspects of business, such as cash-flow. Instead, the government is considering making payments earlier. The first option is to make payments before the CfD start date upon release of the Implementation Statement. The second option is to make payments before the CfD Start Date, upon proof that the total share of the CIB extra proposals investments from the generator has been made, demonstrated through a conditional Implementation Statement.
Question 26 asks:
Which, if any, of the proposals related to earlier release of bonus payments do you support? Please describe any additional benefits or unintended consequences you foresee.
It might as well as “Is there anything else we can do for you?”
Conclusion
The government is in a bind. It seems to recognise that its 2030 grid decarbonisation plan is in jeopardy and that it has nowhere to turn other than to the renewables companies to dig it out of this extremely large hole of its own making. Consequently, regardless of the state of the nation’s finances, the plan seems to be to throw the kitchen sink at this in a desperate effort to make it happen. Given the financial woes of renewables companies all over the world, they probably can’t believe their luck. None of this is going to come cheap, and it’s my belief that the price has just gone up substantially (and will continue to rise as 2030 approaches and Mr Miliband becomes increasingly desperate). How this will lead to lower bills is anyone’s guess.
This article (Lock, Stock and Over a Barrel) was created and published by Climate Scepticism and is republished here under “Fair Use” with attribution to the author Mark Hodgson
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