The UK’s department of energy and climate change (DECC) wants ‘established’ renewables to compete against each other for support under its upcoming contracts for difference (CfD) regime.
The CfD regime has been designed to supersede the Renewable Obligation to fund large-scale renewable projects and will be introduced in 2014.
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The UK government’s Consultation on Competitive Allocation outlines plans to allocate the CfD budget between “established” technologies and “less established” technologies.
Under the new proposals, established technologies will have to submit a bid representing the lowest strike price per megawatt hour that they would be willing to accept. Those technologies with the lowest bids will then be allocated CfDs first, continuing with the next cheapest until the budget allocated to the group has been exhausted.
DECC has identified onshore wind (>5MW), solar PV (>5MW), energy from waste with CHP, hydro (>5MW and <50MW), landfill and sewage gas as established technologies.
The department notes that PV is currently more expensive than other technologies listed as established, but believes that module costs will continue to fall significantly for the remainder of the decade making PV competitive – although DECC states that PV’s cost reduction will be “largely driven by large-scale deployment in global markets (notably India, China and the US) rather than UK deployment”.
The move to a reverse auction system follows recent EU guidelines on renewables support, which called for a move towards lowest-cost-wins auctions in order to “expose renewable energy producers to market prices”.
The UK’s Renewable Energy Association’s chief executive, Dr Nina Skorupska, commented: “The transition to auctions acknowledges and could accelerate the cost reductions of the more established technologies, which is good news for industry and rate payers alike. But if it is rushed it will undermine investment, so we are glad to see government has listened to our concerns and will consult industry before reaching a decision.”
However, the renewables sector still has serious reservations about the current route to market for independent generators under the UK’s Electricity Market Reform.
DECC has recognised the problem and has developed a proposal for an ‘off-take of last resort mechanism’ that would provide a guaranteed minimum price for independent renewable generators. DECC is also undertaking a CfD market readiness report which is working on how current Power Purchase Agreements (PPA) could be changed to better complement the CfD regime.
DECC’s consultation on competitive allocation will close on 12 February 2014.