The UK’s Department for Energy Security and Net Zero (DESNZ) announced in February that it will be extending the Clean Industry Bonus (CIB) scheme to onshore wind from Allocation Round 9 (AR9).
The scheme was introduced in AR7 for fixed-bottom and floating offshore wind to guarantee and incentivise investment in UK suppliers and/or less carbon intensive supply chains. Guaranteed investment is achieved through a financial minimum standard for projects to qualify for the Contract for Difference (CfD). Further spend is incentivised by offering public funding of investments above the minimum standard, known as extra proposals. AR7 awarded £204 million of public funding to support investment made by (or on behalf of) developers.
With the CIB’s introduction to onshore wind, developers may well be wondering; what are CIBs? Are they worthwhile for my project? And, if so, how do I apply? This blog answers those questions.
What are CIBs?
CIB criteria
As mentioned, CIBs guarantee and incentivise investment in UK suppliers and/or less carbon intensive supply chains. DESNZ defines these as:
- Shorter supply chains: UK suppliers in deprived or the least-well connected areas, and
- Cleaner supply chains: global suppliers that can evidence having set or committed to Science Based Targets.
Suppliers must fit into one of these criteria to qualify for a CIB proposal.
Investment
DESNZ’s definition of ‘investment’ is fairly wide ranging: “any transfer of money between an eligible generator and the recipient of the investment”. Meaning, anything from an order for manufactured goods or installation services to fully funding a new facility on behalf of a supplier would qualify.
Components
Investments are limited to the manufacturing, assembly or installation of a list of specific components. This list is broad and essentially covers all of a project’s CAPEX spend. The current list for onshore wind is blades, towers, hubs, nacelles, gearboxes (including drive train), generators, cables, other electrical infrastructure including converters, transformers, wider balance of plant, and foundations.
Are CIBs worthwhile for my project?
CIBs will be optional for onshore wind projects, and the financial minimum standard will only need to be achieved by projects pursuing CIB extra proposals. It is therefore imperative to figure out whether the reward of the CIB is worth the effort of developing extra proposals. The answer to this question will vary project to project, however, to help demonstrate the potential size of the opportunity we show a simplified example below, considering only the shorter supply chain criteria.
Size of the opportunity
DESNZ will allow onshore developers to submit CIBs for a portfolio of projects. This will only be suitable for projects which procure components and services from one source for multiple projects. If this applies to several of your projects, this section can be read from the perspective of the combined capacities of those projects.
Based on the CIB qualifying components and UK supply chain capability, we estimate that on a typical UK project around 30% of the CAPEX will qualify for CIB. Most of this qualifying CAPEX is civil and installation works with a small percentage from ancillary turbine components such as cabling and tower internals. We also assume that UK onshore wind projects typically have a CAPEX of £1.5m/MW. Therefore approximately £450k/MW could qualify for CIB extra proposals. To access the reward of CIB extra proposals the project must first meet the financial minimum standard of £25k/MW meaning that the qualifying spend for CIB extra proposals could be £425k/MW.
The question remaining is: of this spend how much public funding support can be expected? The answer to this question is complicated as you (the developer) decide how much support you request and whether that support is provided will depend on the CIB budget and the level of competition from other developers. Let’s assume that you submit CIB extra proposals for the entire qualifying spend of £425k/MW, requesting 10% government support for each extra proposal.
If all were successful you would see a return of £42.5k/MW. For a 100MW project, this is £4.25m of government support which is about 3% of CAPEX. Although the process is much more nuanced than this simple example, this illustrates the potential opportunity available to onshore developers from the introduction of CIBs.
How do I apply?
So, you’ve decided the reward of the CIB is worth it, how do you apply? Fortunately, the application process is simple: fill out DESNZ’s application sheet template and submit during the application window. For AR8 the application window opened from 13th to 21st May, it is expected to open at a similar time in AR9.
The tricky part comes before the application window opens, in gathering the information and gaining the sign-off required in the application sheet. This will involve reviewing your projects potential supply chain for opportunities, engaging directly and getting buy-in from potential suppliers and coordinating these activities to develop a coherent CIB strategy that aligns with project objectives and will improve your project’s financial competitiveness.
Across AR7 and AR8, BVGA has gained significant experience in delivering these services to developers. If you’d like to know more about CIBs or discuss how BVGA could support you, I’ll be attending RUK and Scottish Renewables’ Onshore Wind Conference in Edinburgh next week and would be delighted to meet. You can reach me at swh@bvgassociates.com.
