What happened in AR7a?

This round saw a record number of successful projects including 157 solar PV and 28 onshore wind projects. This equates to 4.9 GW of new solar capacity and 1.3 GW of onshore wind, significantly higher than the previous auction round (AR6).

The auction “cleared” at £65.23/MWh for solar PV and £72.24/MWh for onshore wind. Solar strike prices were around 10% lower than AR6, reflecting continued reductions in technology and supply chain costs. Onshore wind prices rose by around 2%, as turbine and construction costs remain high.

To stimulate competition, AR7a was the first CfD auction to offer 20-year contracts, compared to the 15-year terms available in AR5 and AR6. For developers, the additional five years of electricity price guarantees provides longer revenue certainty which increases upfront cost risk appetite.

This shift is important when assessing CfD competitiveness. With longer guaranteed revenues developers can potentially absorb higher capital costs, especially those associated with grid connections. 

Siting and grid connections

Grid connection costs can include infrastructure upgrades, land rights, and technical works. As auctions are price-driven, developers are increasingly targeting sites closer to substations to reduce connection costs and minimise project risk.

Savills Earth analysed the distance of successful solar PV projects in AR5, AR6 and AR7a from the nearest Bulk Supply Point (BSP) or Grid Supply Point (GSP) to assess whether the enhanced revenue certainty provided by AR7a’s longer contracts has expanded developers’ tolerance for siting projects further from substations. The analysis only covers England and Wales due to data availability. Sample sizes over AR5, AR6, and AR7a are 296 for solar and 12 for onshore wind, so we focused on solar PV.

Projects which were successful in in AR7a were, on average, 5.1km from the nearest BSP or GSP. This compares to 4.5km in AR6 and 5km in AR5, showing an uptick in the distance to nearest substations in AR7a, especially in the NPG (Northern Powergrid), SPEN SPM (SP Energy Networks Manweb), and ENW (Electricity North West) network areas, showing:

• AR7a vs AR6: When levelised for contract length, AR7a reflects a higher strike price compared to AR6 as well as an increase in the average distance to the nearest substation. This suggests that higher revenue certainty may have allowed the buffer zones for sites to expand, while enabling them to remain competitive.
• AR7a vs. AR5: The average distance for AR7a is marginally greater than AR5, while the levelised strike price of AR7a is higher than AR5. This reinforces the view that AR7a developers were able to operate at slightly extended distances from substations without compromising competitiveness, supported by the enhanced revenue certainty of 20-year contracts.

Outcomes

While proximity to grid infrastructure influences costs, it’s just one of many factors affecting CfD strike prices. Data from previous auction rounds shows that higher revenue certainty is often linked to projects located further from grid assets. This highlights the importance of balancing connection and easement costs when siting projects to remain competitive in CfD auctions, helping investors and developers plan future projects more effectively.

Further information

Contact Kyle Rarick

Power Perspectives: GB electricity demand connections