AR6 Contracts for Cronies?

Why did the Government award more than the limit of Permitted Reduction contracts to Hornsea Project Three?

Regular readers will remember the recent article on the Allocation Round 6 (AR6) results. After publication, I had a conversation that prompted me to take a closer look at the contracts awarded under the Permitted Reduction Scheme. Let us take a look at what I found.

According to the Contract for Difference microsite, a maximum of 25% of the original capacity of a project can be withdrawn from its original contract and rebid under the Permitted Reduction Scheme part of AR6.

If we now look at Hornsea Project Three Offshore Wind Farm, it was originally awarded a contract in AR4 with a total capacity of 2,852MW (see Figure 1).

Figure 1 - Hornsea Project Three Original AR4 Contract for 2,852MW

This original capacity is confirmed on the contract database of the Low Carbon Contract Company (LCCC). The LCCC database also shows that the withdrawn capacity is 705.9MW, or 24.8% of the original capacity which is slightly below the 25% limit.

If we turn now to the AR6 results, we can see that Hornsea Project Three was awarded three individual contracts under the Permitted Reduction Scheme of 360MW each, giving a total of 1,080MW (see Figure 2).

Figure 2 - Hornsea Project Three AR6 Permitted Reductions 1,080MW

This 1,080MW represents 37.9% of the original capacity, which is well in excess of the 25% limit. The contract conditions (see 6.2 on p82) for AR4 say that if they try to adjust the capacity to less than 75% of the original, then the request for adjustment will be invalid, meaning the original contract terms apply. The obvious question therefore arises: why has Hornsea Project Three been awarded Permitted Reduction Contracts above the 25% limit?

I approached the DESNZ Press Office on Sunday for an answer but have not yet received a reply. In the absence of an official response, we can piece together information from other sources to try and shed some light on the issue.

Hornsea Project Three is owned by Ørsted and Hornsea Project Four, also owned by Orsted, was the biggest beneficiary of AR6 winning a contract for a 2,400MW project. It is probably just accidental that Baroness Brown is a non-executive director of Orsted and is a member of their Asset Project Committee (see Figure 3).

Figure 3 - Baroness Brown Non-Executive Director Of Orsted

Coincidentally, the Baroness warned in May that the prices on offer in AR6 “may not be appealing enough” and said that the then Tory “Government needs to be a bit more generous and a bit more flexible.”  Baroness Brown is also the chair of the Carbon Trust which until recently employed Chris Stark as their Chief Executive. Mr. Stark is now Head of Mission Control in DESNZ, tasked with “turbocharging [the] UK to clean power by 2030.” Chris Stark and Baroness Brown have quite a close relationship because Baroness Brown also sits on the Climate Change Committee, where Stark was CEO until earlier this year. Stark is also listed as a member of Baroness Brown’s staff in her register of interests in the House of Lords (see Figure 4).

Figure 4 - Chris Stark is Baroness Brown Staffer

It is certainly a strange coincidence that the Government should apparently break its own rules and award Permitted Reduction Contracts in excess of the limit to Hornsea Project Three, when a director of the owner Ørsted just happens to have a very close relationship with DESNZ’s head of mission control. In the absence of any other explanation, the proverbial person on the Clapham omnibus would probably conclude that these awards amount to contracts for cronies.

I have submitted an FOI request to DESNZ requesting details of contacts between the department and representatives of Orsted during the AR6 process. It will be interesting to see how this story develops when the press office responds and the results of the FOI request are published.

---

The podcast version of this article can be found on these links to Spotify, Apple and YouTube.

---

If you enjoyed this article, please share it with your family, friends and colleagues and sign up to receive more content.