Background
Onshore wind and solar energy lost access to the Contract for Difference (CfD) scheme in 2017[1] despite generating electricity at low cost. This move, together with stricter planning regulations, has halted the deployment of new wind capacity in England (see our previous article Exclusion of onshore wind energy from contract for difference).
Figure 1: Solar and wind power[2]
Support for onshore and solar
The UK government realised that by excluding onshore wind and solar from the CfD scheme, not enough low-carbon capacity would be deployed in the coming years and therefore a change to the CfD scheme was necessary. The following the statement was released from the UK government:
“ […]there is a risk that if we were to rely on merchant deployment of these technologies alone at this point in time, we may not see the rate and scale of new projects needed in the near-term to support decarbonisation of the power sector and meet the net zero commitment at low cost[3].”
The government has therefore introduced a “Plot 1” for “established” technologies which will have to compete for deploying capacity. New onshore wind and solar projects secured under CfD scheme will benefit from the low levelized costs of electricity (LCOE) achieved in recent years. New Capacity will be able to secure CfDs at strike prices below the average wholesale price for electricity, and so over the course of a contract may pay back as much, or more, than they receive in CfD top-up[3].
This change has been welcomed by investors who have started looking at the UK market again. In the Renewable Energy Country Attractiveness Index (RECAI), an (Ernst & Young) EY’s report on the attractiveness of renewable energy investment and deployment opportunities, the UK has climbed two positions (from 8th to 6th) thanks to this change to the CfD scheme[4].
Conclusion
Not only has the decision by the government to re-introduce solar and onshore wind energy in the CfD mechanism been welcomed by investors, this is also good news for consumers since new renewable capacity will deliver electricity at lower cost.
About Pager Power
Pager Power helps developers resolve technical issues that may block their development during the planning process. For more information please call us on 01787 319001.
References
[1] Judicial review lodged against exclusion of onshore wind from Government CfD energy auctions, BanksGroup, date: 15/08/2019, last access: 24/05/2020.
[2] Renewable Energy, Petr Kratochvil, n.d., last access: 24/05/2020.
[3] Contracts for Difference for Low Carbon Electricity Generation, BEIS, date: 03/2020, last access: 24/05/2020.
[4] Renewable Energy Country Attractiveness Index (RECAI), Ernst & Young, date: 05/2020, last access: 24/05/2020.
