Energy Buzz: Clean Industry Bonus

The UK government has introduced the Contracts for Difference ("CfD") Clean Industry Bonus ("CIB") to promote and incentivise investment into offshore wind projects via sustainable supply chains. The new initiative aims to encourage developers to make offshore wind investments in deprived industrial regions, coastal communities, and oil and gas hubs. 

The CIB will provide £27m per gigawatt ("GW") of offshore wind projects, with the potential of additional funding up to £200m for projects totalling between 7-8 GW. It is designed to accelerate the clean energy transition and reward firms for investing in sustainable, local suppliers in industrial communities across Scotland, Wales, and Northern England by supporting the production of essential offshore wind components, such as blades, cables and port infrastructure.

The application window for the CIB is from 13 February to 19 February 2025, where generators will need to submit a CIB application per CfD unit. A project can contain several CfD units, but each unit will require separate CIB applications. The proposals need to be investments that focus on using, building, acquiring or improving tangible assets in the pursuit of meeting at least one of two key sustainable criteria (listed below) and meet the minimum investment thresholds of £100 million per GW for fixed-bottom offshore wind or £50 million per GW for floating offshore wind.

Key Sustainable Criteria

1. Invest in shorter supply chains in a deprived area within the UK; and
2. Invest in more sustainable means of production;

both subject to the framework.

What is a CfD?

CfDs are long term agreements, typically 15 years, between a Low Carbon Contracts Company ("LCCC") (a government-owned entity) and low carbon electricity generators. In such agreements, the LCCC pays a low carbon electricity generator a fixed price per unit of electricity generated, which shields the generators from the fluctuating market prices, and it encourages investment in clean energy by de-risking any capital loss. The aim of these CfD’s is to assist the UK with meeting its decarbonisation goals, maintain security of supply and reduce the cost of energy to consumers. 

Allocations

In advance of a CfD allocation round, developers will be invited to submit proposals to the Department for Energy Security and Net Zero ("DESNZ"). It will set out how they propose to meet the CIB criteria, along with their estimated cost of doing so. All participants must meet a set minimum standard.

The bonuses will be allocated on a competitive basis. Any proposals exceeding the minimum standard will be scored and ranked on the basis of their quality and cost. Before taking part in the allocation round, all fixed and floating offshore wind applicants will obtain CIB statements from DESNZ. Each statement will set out whether the applicant has met the minimum standard and what bonus they are entitled to (if any). The statements will be binding on the eligible developers, and they will have to deliver the contents of the statement. 

If the applicant wins a CfD, failure to deliver the minimum standard would trigger a reduction in the CfD payments (performance-related adjustments) proportional to the level of non-delivery of the minimum standard. However, if the minimum standard has been achieved and exceeded, a bonus will be added to the payments under the CfD. 

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Authored by Hannah Okorafor.