UK sets out draft strike prices for renewables

London, 27 June (Argus) — The UK's Department of Energy and Climate Change (Decc) has announced its draft strike prices for the contracts for difference (CFD) scheme to support investment in renewable energy.

As part of the electricity market reform (EMR) currently making its way through Parliament, and due to be introduced next year, CFDs will replace the renewable obligation (RO) scheme. They aim to provide generators with protection from fluctuations in the wholesale electricity price, offering greater certainty about future revenues. Decc is looking to renewables to contribute more than 30pc of total power generation by 2020.

Among the draft strike prices announced for 2014-19, onshore wind will be set at £100/MWh for 2014-17, falling to £95/MWh for 2017-19; offshore wind will be set at £155/MWh from 2014, falling to £135/MWh by the 2018-19 financial year; tidal and wave support will be £305/MWh throughout the period; biomass conversion will receive £105/MWh; and large solar projects will start at £125/MWh, dropping to £105/MWh (see table).

The prices are broadly comparable with the support levels available under the RO scheme but include adjustments to account for the increased certainty generators have from not bearing wholesale price risk, Decc said. The government will consult on the draft strike prices and the remainder of the EMR delivery plan by 18 July. The prices will be finalised in December following the consultation. The financing for the CFDs will come from within the levy control framework support cap for low-carbon generation under the market reform. The cap will be £4.3bn ($6.5bn, €5bn) in 2015-16, rising to £7.6bn by 2020-21.

Decc will also consult this summer on additional support for renewables projects located on the Scottish islands to allow a differential strike price to be set for these projects in the final delivery plan in December.

“The analysis used to calculate the strike prices will be published alongside the draft delivery plan in July, and be followed by publication of further detail on the contract terms and how CFDs will be allocated. This will give investors further sight of the CFD process, allowing them to move with certainty to bring about the vital energy infrastructure that the UK needs,” Decc said.

For projects that require an early investment decision before the launch of CFDs, the government has now opened the previously-announced final investment decision-enabling programme that allows investors to enter into direct discussions with the government. Notably absent from the list of strike prices was that for new nuclear builds. The government is still in discussions with French state-controlled utility EdF on the price to support the construction of the planned Hinkley Point C nuclear plant. Decc has decided that the plant is eligible for a UK guarantee. The strike price for carbon capture and storage (CCS) technologies has also not been announced because it too is subject to bilateral negotiations, Decc said.

Industry group RenewableUK welcomed the government's response to industry calls to confirm there would be no refinancing clause within the CFDs and enhanced funding for the Green Investment Bank and the technology strategy board. “The confirmation of levels of the draft strike prices is a welcome step forward in setting out how the long-term market is going to work. The levels of the strike prices are challenging but possible considering the reduced time periods that renewables will be supported for under contract for difference system compared to the renewable obligation. However, more details do need to be set out. The most important ingredient remains investor confidence and that will take time to land,” RenewableUK chief executive Maria McCaffery said.

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