By Paul Homewood
It looks like the government is opening the door for higher prices for renewables:
Government seeking views on introducing Contracts for Difference reforms rewarding applicants for including factors not only based on price in projects.
- Potential reforms to Contracts for Difference could mean applicants would be rewarded for including wider benefits their projects could bring when submitting price bids to government for their low-carbon electricity
- these ‘non-price factors’ could include supply chain sustainability, addressing skills gaps and innovation, help drive investment in the sector and boost country’s energy security
- today’s step builds plans to create a more secure energy future and grow our economy, by supporting thriving green industries and high quality jobs
- Potential reforms to Contracts for Difference could mean applicants would be rewarded for including wider benefits their projects could bring when submitting price bids to government for their low-carbon electricity
- these ‘non-price factors’ could include supply chain sustainability, addressing skills gaps and innovation, help drive investment in the sector and boost country’s energy security
- today’s step builds plans to create a more secure energy future and grow our economy, by supporting thriving green industries and high quality jobs
A major reform to the government’s flagship renewables scheme that could help drive further investment in renewable energy deployment and improve energy security is being explored in plans set out today (Monday 17 April).
The Contracts for Difference (CfD) scheme is the government’s mechanism for supporting new British low-carbon electricity generation projects, such as offshore wind and solar developers, and along with FIDER, an early form of the scheme, has awarded contracts to new low carbon projects in Britain with a total capacity of 26.1GW.
The competitive nature of the scheme has already proven successful at placing downward pressure on prices since the first auction was held, with the per unit (MWh) price of offshore wind dropping by almost 70% between the first auction in 2015 and the latest in 2022.
Currently, Contracts for Difference are awarded based on the bid price submitted by renewable energy generating stations, such as an offshore wind farm – the aim being to increase deployment and ensure good value to electricity consumers and, over time, drive down costs.
The government is now seeking evidence and views about reviewing applications not just on their ability to deliver low-cost renewable energy deployment, but also based on how much a renewable energy project contributes to the wider health of the renewable energy industry.
These reforms could see applicants considering overall costs alongside other ‘non price factors’ – such as supply chain sustainability, addressing skills gaps, innovation and enabling system and grid flexibility and operability – when submitting their bids, which could help drive investment in the sector, grow the economy and boost the country’s energy security.
More investment in supply chain sustainability, for example, would help to reduce its carbon impact and access the resources and materials it needs to deploy sustainability at scale in the longer term. Investment to address the skills gaps would help to train the technicians needed to deploy ever larger renewable energy generation stages.
It is now beyond clear that offshore wind farms and others awarded CfDs at ultra low prices in the last round of auctions have no intention of taking up their contracts, instead preferring to opt for much higher market prices. Indeed they would soon go bankrupt under their contract prices, which are simply not economically viable.
The government has attempted to fix this problem in future auctions, by amending the contracts to force generators to trigger them as soon as they begin operations.
But this in turn is making said generators reluctant to bid at such low prices. This latest consultation suggests that the government will find a way to smuggle higher prices through the back door, using spurious arguments about supply chains and green jobs as an excuse.
This quote from the Government’s press release rather gives the game away:
The idea that costs have suddenly just taken off is utterly absurd. In any event, CfD strike prices are index linked from 2012 prices, so if there has been a 10% inflationary increase in the last year, this would automatically be factored into the strike prices in due course.
We can expect to see much higher prices for renewable electricity coming through in future CfD auctions, “justified” by the claim of green jobs, sustainability and the rest of the crap.
And the promises of cheaper energy will quickly be forgotten.
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April 18, 2023 at 03:43PM
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